The board of Wells Fargo & Company (NYSE:WFC) has announced that it will be increasing its dividend by 14% on the 1st of September to $0.40, up from last year’s comparable payment of $0.35. Although the dividend is now higher, the yield is only 2.3%, which is below the industry average.
View our latest analysis for Wells Fargo
Wells Fargo’s Earnings Will Easily Cover The Distributions
If it is predictable over a long period, even low dividend yields can be attractive.
Having distributed dividends for at least 10 years, Wells Fargo has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Wells Fargo’s payout ratio of 28% is a good sign as this means that earnings decently cover dividends.
Over the next 3 years, EPS is forecast to expand by 28.1%. Analysts forecast the future payout ratio could be 31% over the same time horizon, which is a number we think the company can maintain.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was $1.20, compared to the most recent full-year payment of $1.40. This implies that the company grew its distributions at a yearly rate of about 1.6% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company’s earnings are not consistent.
Wells Fargo May Find It Hard To Grow The Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Wells Fargo hasn’t seen much change in its earnings per share over the last five years. While EPS growth is quite low, Wells Fargo has the option to increase the payout ratio to return more cash to shareholders.
Our Thoughts On Wells Fargo’s Dividend
Overall, it’s great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company’s dividend track record isn’t stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we’ve identified 1 warning sign for Wells Fargo that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
EMEA Tribune is not involved in this news article, it is taken from our partners and or from the News Agencies. Copyright and Credit go to the News Agencies, email news@emeatribune.com Follow our WhatsApp verified Channel
