Wells Fargo & Co (WFC) Stock Analysis

Banks.  BIG Banks.  This is one industry in 2016 that has not taken off/sky rocketed or have said – even with negative evidence troubling the world we are going to appreciate.  This is one of the industries that has looked in the mirror and said – oil, world crises, earnings, and other economic factors do play a toll on my business and our price will reflect that.  As the S&P is slightly up for the year, one company is down 13.39% year to date.  Let’s find out the Dividend Diplomat Stock Metrics over… Wells Fargo & Company (WFC).

Wells Fargo

Intro to Wells Fargo & Co. (WFC)

There are the 3 big banks based in the US that I think of when reviewing the industry.  Wells Fargo (WFC), JPMorgan (JPM) and Bank of America (BAC).  Wells has had a rumbling in the news recently – with the news of them paying $1.2 billion related to poor loans that were hidden during the financial crisis.  Obviously a huge number and sad to see.  However, very minimal when compared to JPMorgan’s $13B payment, Goldman’s $5B, etc..  It’ll be nice to have that behind Wells and they can move on.  That has been beating the price down on Wells this year and they are beginning to look even more attractive – Investment Hunting even purchased 80 shares of them last week.  Before we get into WFC, we wanted to bring in the background:

From Google Finance, “Wells Fargo & Company is a financial services and bank holding company. The Company’s segments are Community Banking, Wholesale Banking, and Wealth and Brokerage and Retirement. The Company’s Community Banking segment offers a range of financial products and services for consumers and small businesses, including checking and savings accounts, credit and debit cards, and auto, student and small business lending. The Community Banking segment’s products include investment, insurance and trust services, and mortgage and home equity loans. The Community Banking segment’s products and business segments include middle market commercial banking, government and institutional banking, corporate banking and commercial real estate, among others. The Company’s Wholesale Banking segment provides a range of financial solutions to businesses across the United States and around the world. The Wealth and Brokerage and Retirement segment provides a range of financial advisory services.”

As you can see – they are about as traditional of a bank as it gets.  Heck, I even have my auto loan through them, clean and easy.  This analysis comes at a great time when it’s going on well over the 30 days since I’ve purchased a stock (moreso going on two months now!), so I’m excited to dig into WFC details, of course – using our great Dividend Diplomat Stock Screener metrics to boot.  Let’s get into the details on WFC, and their two competitors of JPM and BAC!  

Wells Fargo & Co. (WFC) Analysis

wfc analysis

1.) Dividend Yield – Wells (WFC) is strong here with the highest yield at 3.19%, well over the S&P average of ~2.2% and equates closely to my overall yield of my portfolio (standing at 3.72%, okay, maybe not as close).  As you can see – Bank of America is definitely a low yielding stock at the moment.  However, the difference to JPMorgan (JPM) and their yield is minimal – as 14bps is now a make or break decision here, as every $1,000 invested has an impact of a small $1.40, so no sweat.

2.) Payout Ratio – Again all 3 companies here have great payout ratios, with, as similar as above – WFC & JPM have no real deviation, and one could argue that the higher yield of WFC equates to a slightly higher payout ratio, as that makes sense.  The biggest moat is with BAC and they can jack up the yield without feeling the pinch.  Overall, however, under 60% payout and not a single fret in my mind on the payout ratios here.  All winners.

3.) Dividend Growth Rate – This is a big proponent here, as we know –  I love the impact the dividend growth rate has on a portfolio and it’s very wonderful to see with these 3 bank stocks.  Not one is an aristocrat, however, but all have had a nice streak of divvy increases.   Note, BAC did not increase anything in 2015, and went from $0.01 to $0.05 in 2014, so very “skewed” results here.  I wanted to show the 2015 growth, as that paints a better picture, as WFC’s DGR was impact by earlier high growth years, but I wanted to show that last year wasn’t as strong.  JPM, however, showed a nice double digit growth in 2015, and with a payout ratio of barely at 31%, they could do it again.  WFC – I expect not as strong here.  Both of these dividend growth rates are higher than my weighted average dividend growth rate.  Interesting, I like it and tough call.

4.) 5 Year Average Dividend Yield – All 3 crush their 5 year average dividend yield, which is just one sign of potential value to be unlocked.  We have a difference of 70bps on WFC, 45 bps on JPM and a whopping 85 bps with BAC (which I feel is skewed with long periods of LOW yield at $0.01 per quarter) – I would say WFC is the clear winner here, with the biggest moat and true difference, nothing against BAC.  Okay WFC, nice win here.

5.) Price to Earnings (P/E) Ratio – I love this metric still when looking for potential undervaluation.  All 3 stocks are well under my weighted average P/E ratio, under the S&P 500 ratio, so all three look very strong.  JPM and WFC are very closely related here.  This is tough.  I like all of three of them in the P/E ratio.  Again, another tough decision.

Overall, Wells Fargo (WFC) has the following: A very strong/low payout ratio at 35%, a solid yield at 3.19%, undervalued at ~11 P/E ratio with a yield over the 5 year average by 70 basis points, this is a stock for sure on my watch list right now.  I cannot argue with the pure fundamental metrics here in this case, at all and wonder if they fit my appetite for reasons to make a larger than normal investment.  I mean heck, Bert could use them if he changes his mind in reasons why he doesn’t want to buy a house.  This just may fit in our portfolio… hmm… definitely on the watch list in my books.

Conclusion on Wells Fargo & Co (WFC)

In conclusion – not going to buy at this very second, but will include them on stocks I am watching.  Us diplomats, each in our individual portfolios, does not own a significant financial institution (outside of Bert’s first investment discussed in his journey here).  The stock is down quite a bit this year, low P/E, solid yield, D A M N!  It shouldn’t be this hard, really, it shouldn’t haha, but I love making decisions more difficult than they should be.  C’mon!!!

How do you feel about Wells (WFC)?  Would you consider them after the news on the $1.2B settlement?  Do you like/prefer another big bank that is out there?  Do you actually bank with WFC by any chance and like/dislike them?  Do you already own the stock and why/when did you purchase?  Extremely excited to hear.  Thanks everyone and hope you are all staying warm and safe, as in Cleveland it is 30 degrees and still snowing.

-Lanny

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23 thoughts on “Wells Fargo & Co (WFC) Stock Analysis

  1. With a wide moat and all the points above, its on my watchlist. I will probably buy a small chunk if the market is still elavated.
    D4s

  2. Ciao Lanny,

    One of my biggest holdings at the moment, waiting for a slightly better price to come in. Add in your analysis that it was one of the few banks that did not have a huge pile of troubles from the bad loans/subprime sitution. It’s a very “boring” bank, managed in a very “boring” way, and to me that is good news as they are part of the “safer” part of the PF…

    Ciao ciao

    Stal

    • Stalflare,

      Whoa. Nice – better price may be hard to come by, but if you do come by it …. LET ME KNOW haha. Boring is good, right? When buying dividend stocks – nothing exciting to it, can they pay? Yes. Can they pay for a long time? Yes. Can they pay more in the future? Yes. If those 3 Yes’s fit the bill, lets buy haha.

      -Lanny

  3. Hey Lanny!
    I’ve recently looked at JPM, USB and WFC. Wells Fargo was the winner 🙂 I believe they can greatly benefit from their economic moat and the stock is currently trading under its fair value. With JPM announcing strong results this morning, you can bet WFC will rise in April 🙂
    I have a feeling we are restarting seriously into bullish mode now.

  4. I’m a fan of WFC. I jsut bought 80 shares last week. Short-term growth looks slow, but as the markets heat up and interest rates slowly rise WFC should see gains. I’m happy to capture the dividend and DRIP until the stock goes back up. Nice analysis.

    • DDU,

      Did you swoop in on any before earnings? Make any moves the last week? Market is killing me and not sure what to do over here! Bah. Stock Piling Cash could be a fun game, we shall see. I hate cash haha.

      -Lanny

  5. The settlement isn’t the issue in my mind. It’s the living will performance. Or their Houston operation (not only debt – but equity stakes in oil). Their reserves are probably adequate but recent execution has been a little suspect. But probably best in breed on the US side.

    • Charlie,

      Thank you for coming by. Yes – I could see Houston providing a form of hearburn, given the concentration of oil & Gas down there. From a big bank perspective, they have better fundamental qualities, but who is that for me to tell? I do know banks and they were a bank that were sound for the most part, and even if the settlement isn’t an issue – it was smaller compared to most, eh?

      Thanks for stopping by Charlie, talk soon!

      -Lanny

  6. I just grabbed some WFC yesterday in my weekly purchase! I was not holding any big US banks, and with the price been down, and the low payout ratio it made sense to start a position for me. Thanks for the nice analysis.

    • Fab,

      You!!! Haha, NICE job and couldn’t have said that you purchased at a great time as well – at a slight discount to what the rest of the week would have told you. Great metrics this company has, that’s for sure. Enjoy it!

      -Lanny

  7. Hey guys,

    Great analysis. I’ve owned WFC for a few years now and it has been one of my better preforming investments even with the troubles in the banking sector over the last year. I have some cash sitting in my Roth right now that I was hoping to invest in BAC or JPM following, what I was hoping to be, a drop in banking stocks following a weak quarter from JPM. However, they beat estimates so everything shot up a good 4-5%. Oh well, still cheap compared to 6 months to a year ago!

    Scott

    • Scott,

      Thanks for sharing the ownership. It stinks – everything popped over the last few days last week – obviously something that kills us and has us holding on to cash harder! This market, is something else, all I gotta say. Thanks Scott again for coming by. Keep on the lookout.

      -Lanny

  8. Hey guys,

    nice analysis, I actually also have it on my radar for this month. And considering the current market it seems to be one of the few stocks which are currently attractive.

  9. I bought them when the Fed rose interest rates (slightly) at $54 and they’ve gone done ever since. I keep averaging down and everytime I do, WFC laughs as me and goes down further. If WFC was a person, it’d be a Carnival Vendor at a circus running the booth where you knock down milk bottles. Everytime you try, you’re constantly disappointed and the carney keeps say, “Oh what about now, lets try again” and I give them more money. Err

    In short, I think I’ve averaged down every dollar they’ve went down and keep telling myself the great and powerful Warren Buffet owns this. It should do me good in the long run. Not sure where it’ll go, but I’ll keep holding it with my $$756.62 investment.

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