Wells Fargo (NYSE:WFC) is a company I purchased back in the May of 2013 when I believed it was going to be a great dividend payor and it has been performing better than the S&P 500 with a return of 38.18% (excluding dividends) versus the 29.12% gain the S&P 500 has posted. It feels like the stock has been trading in a range during the past three months and that is why I always maintain that you must stay prudent and do some homework on the names in your portfolio.
With the last article I wrote about the company, I stated, "I remain long Wells Fargo, but won't be purchasing any shares in the name right now." I didn't buy any shares right then and there but I did a couple of weeks later just in front of the ex-dividend date. The stock has actually increased 2.47% since that time versus the 2.25% gain in the S&P 500. With that said, I'm going to take a look at the stock right now and see what has happened recently.
I always buy shares in a company right before the ex-dividend date and as I mentioned earlier the bank had an ex-dividend date recently. The ex-dividend date was February 4, 2015, making an investor have to own the stock on February 3, 2015 in order to be eligible for the dividend. The payable date will be March 1, 2015. This $0.35 per share quarterly dividend is good for a 2.54% yield at current prices. The company has been increasing dividends for the past four years and I anticipate that it will be able to increase it again in May when the next increase is announced. Each bank however has to go through a review by the Federal Reserve before being able to announce a dividend increase or a buyback but Wells is definitely one of the better behaved banks and should have any issue increasing the dividend by at least $0.03.
With the recent news of American Express (NYSE:AXP) and Costco (NASDAQ:COST) parting ways one has to wonder if Wells will make a play for partnering up with Coscto. However, the margins are shrinking for the banks on these kinds of partnerships. Imagine Costco as a consumer shopping for a brand new car, they are going to go around to all the dealerships in town and pit them against one another, negotiating the price of the car they are looking at downwards until something reasonable is attained for both sides of the deal. I don't believe that Wells needs to be in the running for Costco's business because the bank is performing well and without it and there isn't really a need to go after business which decreases margins.
With the Janet Yellen testifying on the state of the economy this week we have heard rumors of interest rates increasing sometime in June but really haven't heard of anything concrete by way of increasing interest rates anytime soon. Increasing interest rates is how Wells is going to able to make more money right now. Though I prefer interest rates to increase I believe the Fed Chief might pour some water on the fire with the testimony tomorrow.
With earnings season coming to an end we saw the banks not reporting so well aside from Wells. The stock shouldn't have been down so much after earnings and now it is back to where it was before earnings. Wells is definitely the best banking stock there is anywhere you look right now with a clean balance sheet, which is hard to imagine after the Wachovia purchase years ago. CEO John Stumpf is definitely one of the better CEOs we've seen in our lifetime, being able to do for shareholders what he's been able to do without having some of the tools (rising interest rates) in his toolkit available to him. I love the stock and will continue to hold it but I won't be buying any shares anytime soon unless it drops below $51 or just before an ex-dividend date.
Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: The author is long WFC.
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.