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A Raise Sent by Stagecoach



March 27, 2014 – Comments (2) | RELATED TICKERS: WFC

Twenty of the twenty-five banks required to play in the Fed's Comprehensive Capital Analysis and Review, more commonly known as stress tests, had their capital plans approved on the 25th.  I was happy to see one of my larger holdings, Wells Fargo, in that pack.

The dividend hike in Wells' capital plan still needs to be approved by the board and the plan includes a share buyback authorization that has already been approved.  The dividend hike will bump the payout from 30 cents/share/qtr - a nice 16.7% boost - which makes the forward yield 2.85% based on today's closing price.

The increased share buyback authorization is for 350 million shares, or over 6.5% of the shares outstanding as of 31 Dec.  Just because a buyback is authorized doesn't always mean all the shares will actually be repurchased and companies often issue new stock for options or other purposes that make the buyback just tread water.  In Wells' case, the buyback program has been reducing shares outstanding.

At about 12 time earnings and 1.8 times tangible book value, the stock is priced reasonably compared to the broad market and is roughly in line with peer JP Morgan.  If it wasn't already one of my bigger holdings, I'd probably be adding here, but since it is, I won't unless the stock pulls back.

As always, do your own work before making a buy or sell decision.  The risks for Wells include a significant mortgage business that has been dinged by rising rates.

Fool on!  Russ

Disclosure:  As mentioned above, long WFC.


2 Comments – Post Your Own

#1) On March 27, 2014 at 11:11 PM, awallejr (34.58) wrote:

Well if you want to hold a large bank JPM or WFC are ones I would suggest.  Please avoid C like a plague, even tho I bank there, owe them a mortgage, a credit line and 2 CCs.  I am a customer they would want, but I suspect they have too many they shouldn't have.

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#2) On March 28, 2014 at 9:42 AM, rd80 (95.74) wrote:

Agree on C.  I owned some for a while thinking it was a turnaround story.  Bailed when Pandit left. Fortunately, that didn't cost me too much.

Cramer was speculating/advising that they should do a big share issue to raise capital.  If something like that happens, maybe it would be a good buy on turnaround speculation.  If I wanted to play big bank turnaround today (and I don't), I'd go with either BAC for a bank turnaround or SAN for future economic recovery (someday, maybe).

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