Having passed the Fed’s stress test, Wells Fargo (WFC), one of the major Wall Street banks, plans to double its quarterly common stock dividend to $0.20. However, the dividend still remains below pre-pandemic levels.
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Additionally, the bank’s capital plan includes common share repurchases of up to $18 billion for the fourth quarter, ending June 2022. The decisions are subject to approval by the board, which is scheduled to meet in July.
The move comes as a blessing for its shareholders, who witnessed a sharp 80% cut in dividends in 2020 due to restrictions placed by the Federal Reserve on Wells Fargo’s capital distributions amid coronavirus-induced chaos.
The company expects its stress capital buffer (SCB) to be 3.1%, which is well above the minimum level. SCB measures the amount of incremental capital a company must hold above its minimum regulatory capital requirements. (See Wells Fargo stock chart on TipRanks)
CEO of Wells Fargo Charlie Scharf said, “The expected increase in our dividend is a priority, and our plan contemplates it will continue to increase as we grow earnings capacity, subject to future stress test results. We will also regularly evaluate market conditions, remaining pandemic related risks, and other risk factors, which may result in adjustments to the timing or amount of our expected capital actions.”
On June 15, Raymond James analyst David Long reiterated a Buy rating on the stock and raised his price target to $52 from $50. The new target implies 13.6% upside potential from current levels.
Long said, “Recently updated guidance for $900 million of revenue-driven expenses this year (up from $800 million in April and $500 million in January) bodes well for its revenue outlook. We believe wealth management, investment banking and card-based revenue are likely tracking higher than originally anticipated.”
The rest of the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 10 Buys and 7 Holds. The average Wells Fargo price target of $48.50 implies 5.9% upside potential from current levels.
Furthermore, Wells Fargo scores a “Perfect 10” on TipRanks’ Smart Score rating system, indicating that the stock has the potential to outperform market expectations.
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