Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Here's When Wells Fargo's CEO Expects the Bank to Return to its Normal Dividend

By Bram Berkowitz - Dec 8, 2020 at 11:50AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

While restrictions on dividends could be removed later this month, it still could be some time before Wells Fargo returns to normal capital distributions.

Following restrictions on bank capital distributions by regulators, and a $2.4 billion loss in the second quarter, Wells Fargo ( WFC 2.22% ) 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.

Charlie Scharf

Image source: Wells Fargo

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$48.81 (2.22%) $1.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.