With the image of big bank bailouts still fresh in many peoples’ minds, it would seem that investing in shares of banking industry stocks isn’t such a great idea. Yet the right bank stock purchased at the right price could provide investors with both growth and income in their portfolio. Take for instance, Wells Fargo & Co (NYSE:WFC). Here, investors who are seeking dividend income could be well rewarded by hanging on to this company’s shares.
Plans to increase shareholder payouts
Many bank stocks of late – including Wells Fargo & Co (NYSE:WFC) – have recently embarked on capital plans with regulators seeking higher payouts for their shareholders. And, should Wells be granted this option, a substantial dividend increase could been seen for its investors. Already in 2013, Wells Fargo & Co (NYSE:WFC) has upped its dividend by 14% – while waiting on Federal approval to increase it even further.
Wells Fargo & Co (NYSE:WFC) also posted a record profit for 2012, with its net income rising 19% to almost $19 billion. Although Wells was forced to trim its dividend payout slightly during the recent recession, the firm has subsequently been raising it again since June 2011.
In addition, this bank has emerged as one of the healthiest banks in the U.S. since the financial crisis – with its share price estimated to increase by more than 13% throughout 2013. One big catalyst for this could be Wells Fargo & Co (NYSE:WFC)’ entry into potential profit areas other than pure financial services, such as the aircraft leasing business. Wells Fargo & Co (NYSE:WFC) has entered into this $110 billion dollar industry with a $500 million portfolio. More cash flow certainly has the potential to bring in more dividend income for this big bank’s shareholders.
How other industry colleagues are faring
Other industry colleagues such as Bank of America Corp (NYSE:BAC) and Citigroup Inc. (NYSE:C) are trading at significant discounts to their book value, while both have also embarked on some fairly major cost cutting activities of late in an effort to increase shareholder value.
What does this mean for potential investors? One consensus is that the low price valuations of these banks are due to the intense market volatility of the past few years. But in any case, if profits are made by buying low and selling high, these two banking institutions could offer some nice investor returns.
The share price of Bank of America Corp (NYSE:BAC) actually doubled in 2012, due in large part to the rise in yield on the 10-year U.S. Treasuries. And as long as the Federal Reserve keeps these rates low, shares of Bank of America will likely continue to trade at a big discount to their book value. This alone could provide a nice growth play for Bank of America Corp (NYSE:BAC) shareholders.