The current Wells Fargo (WFC) isn't your mom and dad's Wells Fargo from yesteryear, but the dividend it pays is. The company currently yields 2.77% but has been paying a growing dividend for quite some time now. The current Wells Fargo is a national force to be reckoned with after the acquisition of Wachovia as opposed to the West Coast powerhouse it used to be before the acquisition. The Oracle of Omaha Warren Buffett has been accumulating shares of this money center bank and currently holds an 8.63% stake in the company with about 458 million shares. The company most recently reported on 12Jul13 and beat on earnings and revenues. The stock is up 26.59% in 2013 and is beating the S&P 500, which has gained 18.55% in the same timeframe, and with that in mind I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth picking up some more of Wells Fargo right now for the financial sector of my dividend portfolio.
Wells Fargo currently trades at a trailing 12-month P/E ratio of 11.73, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 10.76 is currently inexpensively priced as well for the future in terms of the right here, right now. Next year's estimated earnings are $4.02/share and I'd consider the stock cheap until at least $60.30. The one-year PEG ratio (2.53), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that Wells Fargo is expensively priced based on a 1-year EPS growth rate of 4.63%.
On a financial basis the things I look for are the dividend payouts, return on assets, equity and investment. Wells Fargo boasts a dividend of 2.77% with a payout ratio of 26.5% while sporting return on assets, equity and investment values of 1.4%, 13.6% and 9.9% respectively; which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play I believe the 2.77% yield of this company is good enough for me to take shelter in for the time being.
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in middle territory with a value of 53.92 but with downward trajectory, which is a bearish pattern. To confirm that, I will look at the moving average convergence-divergence (MACD) chart next and see that the black line is below the red line with the divergence bars increasing in height to the downside, indicating the stock is trading with downward momentum. As for the stock price itself ($43.27), I'm looking at $44.95 to act as resistance and $42.73 to act as support for a risk/reward ratio which plays out to be -1.25% to 3.88%.
- The company is close to locking up trial number two regarding its securities lending program and withholding material information from investors. The jury began deliberations on 07Aug13 for this particular case which lost non-profits approximately $8.2 million. Wells lost case number one and forked over $30 million as part of the settlement.
- The company declared a dividend of $0.30 per share payable on 01Sep13 with an ex-date of 07Aug13.
- Wells Fargo began to expand across the pond with its real estate investment banking business to the U.K. looking to increase its non-U.S. revenue from the current 3%. This can bode well for earnings expansion in the future if done correctly and I have no doubt that Wells Fargo with its conservative management style can get this accomplished.
Wells Fargo is inexpensively valued based on future earnings but expensively priced based on future growth prospects (1-year outlook). Financially, the dividend payout ratio is low and management has been making wise decisions. The technical situation of how the stock is currently trading is what is telling me that it can trade a bit lower for now as the stock has downward trajectory on the RSI and MACD charts. Mr. Buffett keeps purchasing shares of this great bank and I am on board with him, but I'm going to buy a small batch in the stock for now and wait for a lower entry point before I begin to purchase a big lot of the stock.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!