Wells Fargo (NYSE: WFC) shares have dropped over 50% since the start of 2020. And to compare, the S&P 500 is down 30%. Wells Fargo has misstepped over the past few years but it’s still a cashflow-strong company. And it’s a great time to buy stock for long-term investors. As of Friday March 20, 2020, it’s my newest position. I locked in a 7.6% dividend yield and it makes up close to 10% of my total portfolio.
Unlike the 2009 crisis, this bear market isn’t stemming from financial mismanagement. Big banks are much stronger after recovering from the housing crisis. They can easily manage through the new global recession.
Investors that can buy into the short-term volatility should see higher returns over the next few years. I’ve done deep research into the Wells Fargo’s valuation but this is just a quick update. I’ll show you how the company has rewarded shareholders in the past. This history reveals valuable trends…
Wells Fargo Rewards Shareholders
Dividends
Wells Fargo cut its dividend by more than half during the last stock market crash. Although, it was one of the healthier banks. After the cut, Wells Fargo resumed its trend of raising its dividend each year. And by 2014, the annual dividend was already higher than the pre-crisis high of $1.30.
This year Wells Fargo is set to pay shareholders $2.04 and based off of my purchase price, that’s a 7.6% dividend yield. In the chart, you can also see the payout ratio over the last 10 years. It’s climbed but it’s still under 50%. That gives the board of directors wiggle room to continue raising the dividend.
Stock Buybacks
Another important way Wells Fargo has rewarded shareholders is by repurchasing stock. The chart below shows Wells Fargo has increased its total buybacks over the last five years.
As a result, total shares outstanding have dropped from over five billion to almost four billion today. And Wells Fargo stock is now trading at a deeper discount, so buybacks make even more sense. My percentage ownership in the company increases as total shares outstanding decrease.
Although, Wells Fargo and other big banks have announced they would stop buybacks due to this recession. It’s a political move since stock buybacks have a bad rep. But buybacks aren’t the real problem and you can check out my reasoning here… Are Stock Buybacks Bad?
Wells Fargo has stopped its buybacks in the short-term but that’s OK. It’ll provide that much more safety to continue paying a bigger dividend.
Final Thoughts on Buying WFC Stock
Warren Buffet – via Berkshire Hathaway – has started selling Wells Fargo stock over the last few years. Although, he still owns about 7% of the entire company and it’s in his top five largest holdings. With the steep drop in Wells Fargo’s valuation, I doubt he’s selling more stock anytime soon.
It’s a rare opportunity to be able to buy a big healthy bank with over a 7% dividend yield. Sure, the recession will slow economic activity, but Wells Fargo should be able to continue to produce healthy cash flows. The company will continue rewarding shareholders for decades to come.
Have you scooped up WFC stock? If not, what’s holding you back? Have you found even better dividend stocks to invest in?
Invest mindfully,
Brian Kehm
The difficult times have come now … I hope to avoid losses, although, indeed, my dividends did not bring anything good this month!