Wells Fargo's Dividend Hike and Stock Buyback Plan Are a Good Start
Following the recent lifting of restrictions on large bank dividends and stock buybacks, Wells Fargo (NYSE: WFC) announced that it plans to double its quarterly common dividend to $0.20 per share. The bank also announced that its board of directors has authorized an $18 billion stock repurchase plan between Q3 of 2021 and Q2 of 2022. While increases had been expected, many still didn't know exactly how much Wells Fargo would increase its dividend, or how large the repurchase program would be. But I was happy with the moves the bank made. Here's why.
Now, doubling the quarterly common dividend from $0.10 to $0.20 per share is not that big of a jump after Wells Fargo cut its dividend 80% last year. But the raise quickly gets Wells Fargo back to a more normalized range in terms of dividend yield and payout ratio.
Currently trading around $43.50 per share, an $0.80 annualized dividend gives the bank a roughly 1.8% dividend yield, which is still toward the lower end of where its peers are, but much more in line. In terms of payout ratio, analysts on average expect Wells Fargo to generate earnings per share (EPS) of $3.82 in 2021. If this ends up happening, Wells Fargo would have an annualized payout ratio of 21%, which again gets close to the range of most of its big bank peers that tend to have a dividend payout ratio between 25% and 40%.
Source Fool.com
