Let’s be up front and say an investment in large cap banking stock Wells Fargo & Co (NYSE: WFC) will not have you retiring rich – unless you already are rich! However and thanks to being conservative, Wells Fargo & Company turned out to be a much better bank stock to hold both during and after the financial crisis as it has certainly outperformed bounced back quicker than other banking stock. With that in mind, here is a quick look at some of the latest good news coming from Wells Fargo & Company:
- The Stock Price. According to Google Finance, Wells Fargo & Company is up 9.7% since the start of the year, up 11% over the past year and up 14.3% over the past five years. That may not be a spectacular enough performance for many investors, but its not a bad performance for more conservative ones – especially if you factor in Wells Fargo & Company’s $1 dividend for a forward dividend yield of 2.7%. Certainly, that yield is better than what a CD there is paying! Moreover, a quick look at WFC's chart shows how well the bank bounced back after the financial crisis:
- Not Overvalued. While one has to be cautious basing a valuation solely on P/E, especially for a bank, Wells Fargo & Company has a trailing P/E of 11.07 and a forward P/E of 9.57. Book value per share is also $27.66 while WFC recently closed at $37.21. And while this valuation probably means Wells Fargo & Company is not undervalued like its peers, investors have some comfort in the fact that they are paying a premium for quality.
- The Warren Buffet Connection, Dividends and Share Repurchases. For what its worth, Warren Buffet’s Berkshire Hathaway Inc. (NYSE: BRK.A) is the largest shareholder in Wells Fargo & Company with an 8.34% stake in the bank – a little more than double the stake its next biggest shareholder (Vanguard Group) has. Moreover and in Buffett’s 2010 letter to shareholders, he stated his belief that the largest dividend gain in the Berkshire Hathaway is likely to come from Wells Fargo. In fact, Wells Fargo & Company has stepped up its dividend and share buyback program thanks to its diversified business model.
- Wealth Management Hires are Up. The wealth management arm of Wells Fargo & Company more than doubled the number of experienced brokers it hired last year and apparently momentum is still going strong. However, it should be noted that Wells Fargo & Company pays brokers less than other firms, but the bank can do this because they are not recruiting at the top end of the food chain. Moreover, the bank has turned itself into an attractive destination for middle-tier brokers.
- Biggest Small Business Lender Nationally. Wells Fargo & Company was the largest lender to small business nationally in 2012 with $32.8 billion in small business loans followed by Bank of America Corp (NYSE: BAC) at $26.2 billion.
- No Nasty Cyprus Exposure or Exotic Activities. Wells Fargo & Company tends to think of itself as a community bank focused on deposit taking and lending rather than a bank involved in exotic activities like derivatives trading (think of the “London Whale”) or investing in far off places like Cyprus. The drawback of course is the bank is still exposed to the US mortgage and foreclosure crisis or fiasco – which appears to be slowly unwinding and working itself out.
In other words, if you are looking for a conservative investment with a dividend yield and return that is a bit better than what CDs are getting right now, you are not likely to go wrong with an investment in Wells Fargo & Company.
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