Wells Fargo: Higher Interest Rates Create Fixed Income Opportunities

(6min)

Summary

  • Wells Fargo's preferred shares now offer a 6.4% yield, making the risk/reward ratio even more attractive amid higher interest rates.
  • The bank only needs about 6% of net profit to cover preferred dividends, ensuring strong coverage and safety for preferred shareholders.
  • Series Z preferred shares trade at a discount, boosting yield and offering potential capital gains if interest rates decline in the future.
  • I remain bullish on Wells Fargo's preferreds, holding a long position and seeing the current yields as an excellent fixed-income opportunity.
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Neighborhood bank building. Wells Fargo branch in Little Neck, Queens, New York.

Alex Potemkin/iStock Unreleased via Getty Images

Introduction

Wells Fargo (NYSE:WFC) doesn’t need a long introduction, as this US-based financial institution enjoys a worldwide name and brand recognition. In my previous articles I focused on some of the bank’s preferred shares as I liked the risk/reward ratio of

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This article was written by

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The Investment Doctor is a financial writer, highlighting European small-caps with a 5-7 year investment horizon. He strongly believes a portfolio should consist of a mixture of dividend and growth stocks.

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Analyst’s Disclosure:I/we have a beneficial long position in the shares of WFC.PR.Z either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I also have a long position in WFC.PR.L, but no position in the common shares of Wells Fargo.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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