Dividends and share repurchases
Wells Fargo (WFC) returned $3.3 billion to shareholders in the first quarter through dividends and net share repurchases. The bank’s common shares outstanding declined by 7 million shares in 1Q 2015. The decline was due to 48 million shares purchased during the quarter, partially offset by 41 million shares issued primarily through employee benefit plans.
Share issues through employee benefit plans were seasonally high in the first quarter. The graphs above show the net change in common shares outstanding over the last five quarters, and the bank’s dividend and net payout ratios. “Net payout ratio” means the ratio of common stock dividends and net share repurchases divided by net income applicable to common stock.
Increase in dividends
Wells Fargo intends to repurchase an additional 14 million shares throughout the remainder of 2015. The bank got approval for its 2015 capital plan in March. It plans to increase its second-quarter dividend by 7% to $0.375 per common share.
The Federal Reserve approved the capital plans of 28 banks in March. While JP Morgan (JPM), Citigroup (C), and Wells Fargo got unconditional approval, Bank of America (BAC) received a conditional non-objection based on qualitative grounds. Together, these four banks form ~27% of the Financial Select Sector SPDR ETF (XLF).
Return on equity within target range
The bank’s return on equity (or ROE) declined to 13.17% from 14.35% for the same quarter last year. The bank’s target ROE range is 12%–15%. The bank’s liquidity and capital position remain strong.
Wells Fargo’s investment banking business is growing, and the bank plans to grow this business as an extension of its current services. It doesn’t intend to take too much risk, just to expand. Trading revenue accounted for just ~$420 million of the company’s $90 billion revenue for the quarter.