Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at Wells Fargo’s dividend history and safety…
Business Overview and Highlights
Wells Fargo (NYSE: WFC) is a $219 billion business. The company is based out of San Francisco, CA and employs 259,000 people. Last year Wells Fargo pulled in $101 billion in sales and that works out to $390,000 per employee.
The company runs within the financial sector and maintains a solid credit rating (A-) from the S&P. This allows Wells Fargo to issue cheap debt to grow the business and pay dividends.
In January the company’s board of directors announced a 5% quarterly dividend raise. The new dividend of $0.45, up from $0.43, was made payable March 1 to shareholders of record as of February 1.
Wells Fargo Dividend History 10 Years
The company paid investors $0.49 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.64. That’s a 235% increase and you can see the annual changes below…
The compound annual growth is 12.8% over 10 years… but over the last year, the dividend climbed 6.5%. The slowdown in dividend growth isn’t a great sign. Although, Wells Fargo still might be a good income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Wells Fargo’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 3.74% and that’s above the 10-year average of 2.6%. The chart below shows the dividend yield over the last 10 years…
The higher yield shows that investors have bid down the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that for every $1 Wells Fargo earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety, but accountants can manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here is Wells Fargo’s payout ratio based on free cash flow over the last 10 years…
Except for an unordinary spike in 2016, the trend is stable. The last reported year shows a payout ratio of 21.8%. This gives wiggle room for Wells Fargo’s board of directors to raise the dividend.
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Good investing,
Robert
