It's No Secret: Wells Fargo Will Increase Its Dividend in 2014

If you're a shareholder of Wells Fargo (NYSE: WFC  ) , then I have good news for you. The executives of the nation's fourth largest bank by assets have made it exceptionally clear that they intend to raise the company's dividend in 2014.

"We look forward to the upcoming CCAR process," CEO John Stumpf said, referring to the Federal Reserve-administered comprehensive capital analysis and review, "where we expect to request a higher dividend and an increase to our share repurchases."

The same sentiment was echoed by CFO Timothy Sloan at an industry conference in early November: "Our growing capital levels position us well, and we remain focused on returning more capital to our shareholders through dividends and share repurchases."

The only thing that could stand in its way is the Fed. Under the prevailing regulatory framework, the central bank has the power to reject a proposed dividend increase. But, rest assured, there's little reason to believe that will happen.

In the first case, Wells Fargo is more than adequately capitalized. At the end of the third quarter, its fully phased-in Basel III Tier 1 common capital ratio came in at 9.56%. That's 256 basis points above the requisite 7% minimum.

On top of this, the California-based bank has exhibited extraordinary earnings power. The most recent quarter marked the 10th time in a row that Wells Fargo reported record net income. And it was the 14th consecutive quarter of bottom-line growth.

The only thing that could stand in Wells Fargo's way, in turn, is its already respectable 30% payout ratio. In the instructions for the upcoming CCAR process, the Fed pointed out that "requests that imply common dividend payout ratios above 30 percent of projected after-tax net income available to common shareholders in either the BHC baseline or supervisory baseline will receive particularly close scrutiny."

Even assuming enhanced scrutiny, however, it's hard (though not impossible) to envision a scenario under which a reasonable request from one of the nation's soundest lenders wouldn't be approved. This is obviously good news for Wells Fargo's shareholders, as it means they are likely to soon have more money flowing into their own personal coffers.

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9/30/2016 4:00 PM
WFC $44.28 Down -0.09 -0.20%
Wells Fargo CAPS Rating: ****