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).
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
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