Following restrictions on bank capital distributions by regulators, and a $2.4 billion loss in the second quarter, Wells Fargo (WFC 0.96%) cut its dividend from $0.51 to $0.10 per share, a reduction of roughly 80%.
While the bank has since boosted earnings and bank regulators could potentially remove restrictions on capital payouts later this month, Wells Fargo still might not be able to return to a more normalized dividend level for many months.
Speaking at the Goldman Sachs 2020 U.S. Financial Services Conference, Wells Fargo CEO Charlie Scharf said the asset cap it's operating under due to the bank's past phony-accounts scandal still makes deploying capital difficult.
Scharf added that he thinks it's important for the bank to have a "clear line of sight" before returning to a full stock buyback plan and a more normalized dividend to common shareholders.
"So does that mean early, early in the first part of 2021? I think for us, sitting here today, I think that is far less likely than not, but 2021 is a long year," Scharf said at the conference, referring to when Wells Fargo might return to normal capital distributions.
But there is no doubt that when ready, Wells Fargo has the capital to conduct share repurchases and raise its dividend back to normalized levels. The moderator of the Goldman conference noted that Wells Fargo has more than $25 billion in excess capital.
"As we've said before, the vaccine is coming and clarity could certainly come but that is going to dictate when we feel comfortable, and at that point there is no doubt there is substantial excess capital to be deployed both through buybacks, but at some point certainly increased dividends as we continue to increase the earnings capacity of the company," Scharf said.
Prior to reducing its dividend, investors viewed Wells Fargo as an attractive dividend company. Even when it traded at it's high earlier this year at $53.75 per share, Wells Fargo had a dividend yield of roughly 3.8% . Currently, with its dividend reduced to $0.10 per share and trading around $29.34 per share this morning, the bank had a dividend yield of roughly 1.4% .
What was also interesting about Scharf's comments is that he seemed to clump stock buybacks in with the dividend conversation, suggesting that even if the Federal Reserve removes restrictions on buybacks, Wells Fargo may hold off.
Other bank CEOs like JPMorgan Chase CEO Jamie Dimon seem ready to return to normal stock buyback programs as soon as regulators give the go-ahead.