Plans to increase shareholder payouts
Many bank stocks of late – including Wells Fargo & Co (NYSE:WFC) – have recently embarked on capital plans with regulators seeking higher payouts for their shareholders. And, should Wells be granted this option, a substantial dividend increase could been seen for its investors. Already in 2013, Wells Fargo & Co (NYSE:WFC) has upped its dividend by 14% – while waiting on Federal approval to increase it even further.
Wells Fargo & Co (NYSE:WFC) also posted a record profit for 2012, with its net income rising 19% to almost $19 billion. Although Wells was forced to trim its dividend payout slightly during the recent recession, the firm has subsequently been raising it again since June 2011.
In addition, this bank has emerged as one of the healthiest banks in the U.S. since the financial crisis – with its share price estimated to increase by more than 13% throughout 2013. One big catalyst for this could be Wells Fargo & Co (NYSE:WFC)’ entry into potential profit areas other than pure financial services, such as the aircraft leasing business. Wells Fargo & Co (NYSE:WFC) has entered into this $110 billion dollar industry with a $500 million portfolio. More cash flow certainly has the potential to bring in more dividend income for this big bank’s shareholders.
How other industry colleagues are faring
Other industry colleagues such as Bank of America Corp (NYSE:BAC) and Citigroup Inc. (NYSE:C) are trading at significant discounts to their book value, while both have also embarked on some fairly major cost cutting activities of late in an effort to increase shareholder value.
What does this mean for potential investors? One consensus is that the low price valuations of these banks are due to the intense market volatility of the past few years. But in any case, if profits are made by buying low and selling high, these two banking institutions could offer some nice investor returns.
The share price of Bank of America Corp (NYSE:BAC) actually doubled in 2012, due in large part to the rise in yield on the 10-year U.S. Treasuries. And as long as the Federal Reserve keeps these rates low, shares of Bank of America will likely continue to trade at a big discount to their book value. This alone could provide a nice growth play for Bank of America Corp (NYSE:BAC) shareholders.
Yet the bank’s cost cutting efforts have also resulted in the closing of numerous bank branches in hopes of leading more of its customers online to conduct transactions – a much less costly alternative for Bank of America in terms of overhead expenses.
Citigroup Inc. (NYSE:C) has also been on a cost cutting binge recently – yet without nearly as much success as Bank of America in terms of share price or dividend payment to its shareholders. Citi’s first quarter 2013 revenues were up 3% from the prior year – which is a positive sign – as is its commitment to paying solid and continuous shareholder dividends in the future. One catalyst that could help to boost Citi’s investor earnings is the continued purchase of Citigroup Inc. (NYSE:C) shares in at least 9 prominent hedge funds.
Prior to being given the green light to increase its dividend, though, Citi will still need to obtain regulatory permission – a feat that the company was unable to secure in 2012. In hopes of protecting against any similar potential issues this year, Citi has built up a strong amount of capital reserves.
The bottom line
Throughout the past few years, several large banking institutions have essentially “rebuilt” their capital position – many from the levels that were seen prior to the recession of 2008-2009. This has been achieved in large part through improved earnings from lower credit costs. Yet with Wells Fargo & Co (NYSE:WFC), record profit in 2012, coupled with its 19% rise in 2012 net income, shares of this bank’s stock could certainly prove to be a very profitable holding in terms of both income and growth in the short- and long-term time horizon.
The article Wells Fargo Is Still Riding Strong originally appeared on Fool.com and is written by Nauman Aly.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
