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Summary

  • Strong quarterly profits exceed $5.7 billion.
  • Returning capital to shareholders through share buy backs and dividends.
  • Analyst remain bullish on stock upside.

San Francisco, California based Wells Fargo & Company (NYSE:WFC) is a banking and financial services ranked as the fourth largest bank in the U.S. by assets and the largest bank by market capitalization. Wells Fargo is the second largest bank in deposits, home mortgage servicing and debit cards. Today Well Fargo is one of the "Big Four" banks in the U.S. along with JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) and Citigroup (NYSE:C).

Strong Quarterly Profits Exceed $5.7 Billion

On July 14th, Wells Fargo released stronger quarterly results for the period ending June 30, 2014. With strong loan and deposit growth, the company churned out a net income of $5.7 billion, or $1.01 per share, up from $5.5 billion, or 98 cents, year over year. Revenue for the 3-month period was recorded in at $21.1 billion, dropping 1.5% from 21.4 billion year over year. More significantly for the first six months of 2014, net income was reported at $11.6 billion up 8,4%, or $2.06/ share well over 2013 earning which were negative (1.90/share). This is a dramatic improvement in the company's financial position and signals a change in direction. Said CEO John Stumpf:

Our strong results in the second quarter reflected the benefit of our diversified business model and our long-term focus on meeting the financial needs of our customers. By continuing to serve customers we grew loans, increased deposits and deepened our relationships. Our results also reflected strong credit quality driven by an improved economy, especially the housing market, and our continued risk discipline.

Returning Capital to Shareholders by Share Buy Back and Dividends

The recent quarter also seen an increase in the amount of capital being returned to the company's shareholders. In the second quarter the company managed to repurchase a whopping 39.4 million shares while dramatically increasing their dividend payout by 17%. The dividend was increased from .30/share to .35/cents per share yielding shareholders 2.74% based on a stock price of $51/share. In a statement, CEO John Stumpf said:

We remain dedicated to building long-term shareholder value, and I am optimistic about the future as we continue to focus on meeting the needs of our consumer, small business and commercial customers.

Citigroup offers a yield of only .08%, Bank of America at .26% and JPMorgan Chase at 2.73%. Canada's Toronto-Dominion Bank (NYSE:TD) which has made a number of acquisitions and other strategic transactions in the U.S. offers its shareholders steady dividend of 3.40%.

Analyst Remain Bullish On Stock Upside

According to sources, the consensus forecast amongst 32 polled investment analysts covering Wells Fargo advises that the bank will outperform the stock market. Further, the same source reports that the analysts offering 12-month price targets for Wells Fargo have a median target of $54.30/share. The highest projection on the stock is placed at $63/share, which represents a potential of an additional 23% upside on the stock coupled with a 2.74% dividend payment, assuming the bank does not announce additional dividend hikes.

Not only are analysts bullish on the company, but John Stumpf also sent a strong message to the street. In the companies press release he stated:

By continuing to serve customers we grew loans, increased deposits and deepened our relationships. Our results also reflected strong credit quality driven by an improved economy, especially the housing market, and our continued risk discipline. We are committed to both maintaining strong capital levels and returning

Why Wells Fargo Caught My Attention

As a Canadian investor with a position in Canadian banks I would align Wells Fargo on the same platform as the Canadian banks. Canadian banks are characterized with paying modest, growing dividends and a long term growth pattern in their stock price. Wells Fargo has proven that it wants to grow shareholder value by increasing their dividends and share buyback. Further, the company has proven that it can deliver and grow very strong and robust quarterly profits. It is my opinion that Wells Fargo is the only Tier 1 American bank that delivers all the same characters as those of Canadian banks and is an ideal fit for any long term shareholder looking to invest in a stable, mature business seeking growth through share price appreciation and dividend reinvesting.

Disclosure: The author is long TD. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Wells Fargo: Returning More Capital To Share Holders