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How Wells Fargo Creates Value for Shareholders

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Dec. 4 2020, Updated 10:52 a.m. ET

Wells Fargo’s capital plans

Wells Fargo has consistently performed well in stress tests. This performance has let the company increase its dividends annually. On June 29, the Federal Reserve approved Wells Fargo’s capital plans after it found that the company could keep lending in a severe economic downturn. This clears the way for Wells Fargo to reward investors through dividends and share repurchases. The bank reiterated its previously disclosed $0.38 dividend and didn’t give any update on share repurchases. On April 26, 2016, the company increased its quarterly common stock dividend to $0.38 per share from $0.375. For more on this topic, see Did Wells Fargo Pass the Fed’s Stress Test?

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The company’s dividend payout ratio of 35.8% is slightly lower than the cap of 40%. Wells Fargo will continue to pay its investors the current dividend of $0.38 per share. Its dividend yield of 3.4% is the highest among its peers. High yields, coupled with the bank’s strong balance sheet and profitability, are its greatest competitive advantage.

In the two-year period between 2Q14 to 1Q16, the company returned $34 billion to shareholders, outpacing its peers J.P. Morgan (JPM), Bank of America (BAC), and Citigroup(C). Wells Fargo added 350 million shares to its share repurchase authorization in January 2016, reflecting the company’s confidence in its current valuations as well as long-term prospects. See Wells Fargo: Capital Return Outpaces Its Peers for more analysis.

In the first quarter, J.P. Morgan announced dividends of $0.38 per share at a dividend payout of 35%. Its dividend was flat on a quarterly basis but 9% higher year-over-year. This dividend translates to a dividend yield of 3.4% on an annualized basis, based on a closing price of $46.7 on July 7. The company’s dividend yield is significantly higher than other banking players that constitute 48% of the Financial Select Sector SPDR ETF (XLF)(IYF).

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