Wells Fargo Wants to Make You Rich(er)
Dec 4th 2012 1:42PM
Updated Dec 4th 2012 1:52PM
Speaking at a conference in New York sponsored by the investment bank Goldman Sachs , the CEO of Wells Fargo , John Stumpf, said that the nation's largest home lender will ask regulators for permission in the early part of next year to return more capital to shareholders. Given the bank's recent performance and adequate capital cushion, I believe its request will likely be granted.
In a recent article about three reasons to buy Wells Fargo, I noted that a growing dividend was one of them. While its current 2.7% yield leaves much to be desired, as it only narrowly outperforms the broader market's yield, there's strong precedence for the position that the per share payout will grow. As I stated:
Prior to the financial crisis, Wells Fargo paid out anywhere between 35% and 50% of its net income to shareholders. Due to heightened capital requirements and regulatory oversight, however, it had to scale this back, and has only recently built it back up to 23% today. ... So far this year, it's paid out $0.60 per share in dividends. This is double what it paid out in the first three quarters of 2011 and triple the amount over the same time period of 2010.
Additionally, despite the fact that Wells Fargo has had a string of record quarters in terms of revenue and earnings, Stumpf went on to say: "I do believe we can grow net interest income into the future, even in low rates and slow growth. We have more buttons to push."
The announcement comes just a month before 2013 stress test submissions are due from the nation's largest banks, including Bank of America , JPMorgan Chase , and Citigroup . While the Federal Reserve rejected a similar request to raise its dividend by Citigroup last year, and Bank of America two years ago, many analysts, including myself, believe that the trend will be different in 2013, as the entire banking industry has accumulated arguably far too much capital over the last 24 months.
What this means for Wells Fargo shareholders
Needless to say, this is great news for current shareholders of the nation's fourth-largest bank by assets, as it will increase both their payout and put upward pressure on the underlying share price. The same is also true for prospective shareholders, as it gives them one more reason to stake a claim in this shareholder-friendly company.
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The article Wells Fargo Wants to Make You Rich(er) originally appeared on Fool.com.John Maxfield owns shares of Bank of America. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Motley Fool newsletter services recommend Goldman Sachs and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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