As of April 29, Wells Fargo (WFC 0.06%) stock is up by 25% over the past five years. But keep in mind that it also pays a substantial dividend, so it is important to take that into account as well.
Including dividends, and assuming that you reinvest them, Wells Fargo has produced a 44.3% total return over the past five years. So if you had invested $1,000 in Wells Fargo stock five years ago, your investment would be worth $1,443 today.
On the other hand, the S&P 500 benchmark index produced an 89% total return over the same period. And the overall financial sector, as measured by the Financial Sector SPDR ETF (XLF 0.43%), has returned 63% over the past five years. So although Wells Fargo wouldn't have lost you money, its performance hasn't measured up to the overall stock market or to its financial sector peers.
Why has Wells Fargo underperformed?
There are a few big reasons why Wells Fargo has lagged behind other banks and the S&P 500. Just to name a couple of the biggest:
- While its "fake accounts" scandal and other high-profile scandals were revealed well over five years ago, there are still some lingering effects. Most notably, the bank is still operating under an asset cap imposed by the Federal Reserve in 2018 that effectively prevents it from growing. Management and most experts expect the cap to be removed in 2025, but there's no guarantee that will happen.
- Wells Fargo is much more focused on commercial banking (as opposed to investment banking) than its peers. So, recession fears and margin pressures from rising interest rates tend to hurt Wells Fargo's business more than most.
- Much of the S&P 500's recent performance has been driven by megacap technology stocks, while value stocks (like the big banks) have largely underperformed.
So, Wells Fargo has underperformed the market and its peers over the past five years. But if its asset cap gets lifted or if interest rates start to fall, Wells Fargo could have a lot to gain.
