Wells Fargo’s Dividend Yield Curve: The Downward Path in 2017

2nd half of the top 21 S&P 500 companies by market cap

In this two-part series, we’re covering the top 21 mega-cap dividend-yielding S&P 500 companies. We looked at the first 11 companies in the first part of this two-part series. Now let’s take a look at the other ten, ranked in order by market capitalization. The companies are shown in the chart below. Let’s start with Wells Fargo (WFC).

Wells Fargo’s Dividend Yield Curve: The Downward Path in 2017

For an overall look, we’ve also included the chart below, which shows the dividend yields and price performances by sectors. We looked at them in detail in the first part of this two-part series.

Wells Fargo’s Dividend Yield Curve: The Downward Path in 2017

WFC’s revenue in 2016 and 9M17

Wells Fargo’s revenue rose 3% in 2016 before falling 1% in the first nine months of 2017. Wholesale Banking and Wealth and Investment Management drove growth in 2016, offset by Community Banking. Wealth and Investment Management recorded growth in the first nine months of 2017, offset by the rest.

Why diluted earnings fell in 2016 and 9M17

Non-interest expenses increased 5% in 2016 and 6% in the first nine months of 2017. As a result, income before income tax expense fell 5% and 8% in 2016 and the first nine months of 2017, respectively. Net income fell 5% and 6%, respectively in those same periods. Diluted EPS (earnings per share) fell 3% and 4%, respectively, for those periods. Share buybacks have enhanced EPS. The company maintained a strong free cash flow balance until 2015.

Wells Fargo’s Dividend Yield Curve: The Downward Path in 2017

Dividend yield and price performance

Wells Fargo’s dividend yield curve has taken a downward turn since 2017. That’s due to lower dividend growth and a higher price gain compared to 2016. WFC has risen 7.6% on a YTD (year-to-date) basis. Its PE (price-to-earnings) ratio of 14.9x compares to the sector average of 20.6x. The dividend yield of 2.6% compares to the sector average dividend yield of 2.1%.

Wells Fargo’s Dividend Yield Curve: The Downward Path in 2017

How Wells Fargo compares to the broader indexes

The S&P 500 (SPX-INDEX) (SPY) offers a dividend yield of 2.3%, a PE ratio of 23.3x, and a YTD return of 18.4%. The Dow Jones Industrial Average (DJIA-INDEX) (DIA) has a dividend yield of 2.2%, a PE ratio of 21.9x, and a YTD return of 23.1%. The NASDAQ Composite (COMP-INDEX) (ONEQ) has a PE ratio of 25.0x and a YTD return of 27.1%.

The FlexShares Quality Dividend Defensive ETF (QDEF) has exposure to Wells Fargo. It has a PE ratio of 23.4x and a dividend yield of 2.6%. The FlexShares Quality Dividend Dynamic ETF (QDYN) also has exposure to Wells Fargo. It has a PE ratio of 21.1x and a dividend yield of 2.6%.