How Much Will Wells Fargo Increase Its Dividend Once the Fed's Restrictions Are Removed?
Last year, Wells Fargo (NYSE: WFC) slashed its dividend 80% as the Federal Reserve put restrictions on banks' capital distributions during the pandemic. Last month, however, with the economy in much better shape, the Fed announced that as long as large banks pass their annual stress testing later this year, they can resume paying dividends and conducting stock buybacks as they see fit.
Considering that Wells Fargo is flush with excess capital and its earnings are much healthier, I believe the bank will undoubtedly increase its dividend next quarter. By how much? Well, that's a slightly more complex question, but let's investigate.
In the third quarter of 2019, Wells Fargo raised its quarterly dividend to its highest-ever level of $0.51 per share, suggesting an annual dividend of $2.04 per share. At the time, shares of Wells Fargo were trading in a range of roughly $45 to $55. That gave Wells Fargo a dividend yield ranging from 3.7% to 4.5%, which is very strong, especially compared to to that of its big-bank peers. Going by payout ratio, Wells Fargo paid out roughly 55% of its earnings in the third quarter of 2019 in dividends, and a whopping 85% of its earnings in that year's fourth quarter. That is much higher than its big bank peers, which tend to have a dividend payout ratio somewhere between 25% and 40%.
Source Fool.com
