Wells Fargo Jumps on the Dividend-Cutting Wagon

Wells Fargo (WFC) was yet another financial company to cut dividends Friday. Dividend Growth Investor readers have been warned about this one in January and as late as this Wednesday. The company’s board of directors cut the payment to 0.05/share from 0.34 in an effort to retain $5 billion annually. The statement by the president and CEO of Wells Fargo is pretty interesting to read:

This was a very difficult decision but it’s absolutely right for our Company and our shareholders because it will further strengthen our ability to grow market share and to continue our long track record of profitable growth,” said President and CEO John Stumpf. “We will return to a more normalized dividend level as soon as practical. We have among the most loyal shareholders in America – individuals and institutions alike – and we’ve always recognized the value of dividends. Operating results for the first two months of the year are strong. Our ability to grow market share in this environment and to benefit from new business opportunities remains second to none. Our merger with Wachovia is on track and we remain as optimistic as ever about its potential benefits for all our stakeholders.

The company’s dividend cut marks the end of a brutal week for dividend cuts in the financial sector, which started with PNC (PNC) cutting its dividend early in the week. After that it was HSBC (HBC), which also announced plans to raise $17.70 billion from shareholders through a rights issue. US Bancorp (USB) was next by cutting dividends by 88%. Wells Fargo’s statement is another slap in the face for shareholders, as the company, just like US Bancorp, announced that it could afford the current dividend, but chooses not to in order to bolster its balance sheet and take advantage of opportunities.

WFC was one of the first companies to receive bailout funds from the Troubled Assets Relief Program. This dividend achiever has increased dividends for 20 consecutive years. The previous dividend of $0.34/share was well covered by earnings. Despite the rally in the shares, I would consider seling into strength. One could never tell if the company needed to cut the dividend or cut it because it knew it could get away with it.

Financial stocks used to be great dividend investments, but not any more.As a result of all the dividend cuts in the financial sector, dividend growth investors who sold after the dividend cuts are now underweight financials. I am beginning to wonder if dividend investors’ long-term results would suffer in the event that financial stocks experience a rapid recovery once the current recession is over. Both US Bancorp (USB) and Wells Fargo (WFC) have expressed confidence in their ability to increase dividend in the future. I would continue monitoring the activity in the financial sector and look for dividend increases there over the next few years.

Disclosure: None

Comments

[jculley]

Screw you Stumpf, you lieing, coniving, clueless idiot. That Wachovia purchase has already ruined your banks "conservative" reputation. You and the clueless board of directors are almost done annihilating shareholder value.

I hope he dies in a plane crash with the whole board of directors on his way to Washington to explain why WFC needs another $25 billion in bailout.

And I hope he is sharing the plane with Liveris and Immelt.

2009 Mar 07 09:26 PM

[bankman]

I can't help but share your disdain for the management of WFC. I don't like plane crashes so forget that part. John and Dick have taken a company that has been around since 1852 and crashed it (not unlike your plane crash ) in the last 60 days. They absolutely should fall on their swords.


On Mar 07 09:26 PM jculley wrote:

> Screw you Stumpf, you lieing, coniving, clueless idiot. That Wachovia
> purchase has already ruined your banks "conservative" reputation.
> You and the clueless board of directors are almost done annihilating
> shareholder value.
>
> I hope he dies in a plane crash with the whole board of directors
> on his way to Washington to explain why WFC needs another $25 billion
> in bailout.
>
> And I hope he is sharing the plane with Liveris and Immelt.

2009 Mar 07 10:01 PM

[tk77mann]

I would not worry too much about missing out from a "rapid recovery" of financial stock share prices. This recession is going to be a doozy, unfortunately, and we will be lucky to come out of it within a couple years. Consumers have been creamed by the economy and they will not recover quickly since so many jobs have been lost, with more to come. Banks will not do much lending in this kind of economy.

Since banks' balance sheets hide so many toxic loans and their profitability is undependable, I am moving out of these shares into more dependable stock investments. I believe lots of other investors are doing the same, which will keep bank share prices down for a LONG time. Not going to be fooled a second time . . . .

2009 Mar 08 03:14 PM

[madharry]

i think its time for shareholders to take control- lets vote to slash executive and director compensation and incentive pay by 85% as well until dividends are fully restore and lets not award any stock or stock appreciation rights until shares return to the $25 level. I hope pension plans who are large shareholders see this and push this type of resolution. Until senior executives share the pain with common shareholders why should they care?

2009 Mar 08 10:27 PM