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Inside Wells Fargo’s Dividend and Repurchase Plans

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WFC’s rising payouts

Wells Fargo’s (WFC) performance has improved in recent quarters on slow and steady credit offtake and lower provisions, which were partially offset by higher expenses. But the bank has still managed solid dividends and repurchases for shareholders.

The banking giant returned $3.4 billion to shareholders in 2Q17, at a net payout ratio of 63%, based on its net income of $5.8 billion. This compares to $3.1 billion in 1Q17, at a payout ratio of 61% and based on net income of $5.5 billion. WFC expects to enhance its 3Q17 dividends to $0.39 from the current payout of $0.38 (subject to board approval).

Wells Fargo’s 2Q17 dividend per share stood at $0.38, with an implied annualized dividend payout ratio of 2.76%. WFC’s competitors carry the following yields:

  • Bank of America (BAC): 1.25%
  • Citigroup (C): 0.96%
  • JPMorgan Chase (JPM): 2.15%

As banks are expected to see subdued earnings growth in coming quarters, dividends are expected to rise at a slower pace with marginally high payout ratios.

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Buying back stock

Commercial banks (XLF) have been deploying capital for repurchases at attractive prices. As Wall Street discounts the valuations of bankers amid lower expectations, bankers can step in and buy more of their stocks going forward. 

Wells Fargo has approved $11.5 billion in stock repurchases over the next four months subject to management discretion. This decision reflects WFC’s plan to add up stock when prices are expected to be subdued. The company repurchased 43.0 million shares of its common stock for $1.5 billion in 2Q17, and this was partially offset by the issuance of 13 million shares.

In 3Q17, Wells Fargo is expected to engage in higher repurchases, but these will be subject to cash flow generation and stock prices.

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