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Wells Fargo: Capital Return Outpaces Its Peers


Jul. 6 2016, Updated 3:26 p.m. ET

High dividend yield

Wells Fargo’s (WFC) dividend yield of 3.4% is the highest among its peers. Such high yields, coupled with the bank’s strong balance sheet and profitability, offer the bank its greatest competitive advantage.

Wells Fargo (WFC) has rewarded its shareholders through hefty dividends and share buybacks. In the first quarter, it announced dividends of $0.38 per share, with a dividend payout of 35%.

Wells Fargo’s dividend was flat on a quarterly basis, but it was 9% higher on a year-over-year basis. This translates to a dividend yield of 3.4% on an annualized basis based on its closing price of $45.01 on June 27.

The company’s dividend yield is significantly higher than other banking players, which constitute 48% of the Financial Select Sector SPDR ETF (XLF) (KBE).

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Wells Fargo capital return outpaces peers

In the two-year period from 2Q14 to 1Q16, Wells Fargo (WFC) returned $34 billion to its shareholders, outpacing its peers. In 1Q16, Wells Fargo returned $3 billion to its shareholders in the form of dividends and share repurchases.

Comparatively, JPMorgan Chase (JPM), Citigroup (C), and Bank of America (BAC) returned $24 billion, $8 billion, and $7 billion, respectively.

Share repurchase plans

Wells Fargo (WFC) added 350 million shares to its share repurchase authorization in January 2016. This move reflected the company’s confidence in its current valuations and in its long-term prospects.

Meanwhile, Wells Fargo’s competitor JPMorgan Chase (JPM) also announced that it increased its share buyback by ~$1.9 billion. Peers that have expanded their share buyback programs in the last few months are:

  • Capital One Financial (COF) – Added $300 million to its existing share repurchase plan in February 2016
  • Bank of America (BAC) – Expanded its buyback plan by $800 million in March 2016

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