Many bank stocks have recently filed capital plans with their regulators seeking increased shareholder payouts. In this article, I will discuss why some bank stocks such as Wells Fargo & Co (NYSE:WFC) should be held, given the potential for increased dividends and dividend yields in both the short- and long-term.
Should the capital plans be approved, a significant dividend increase could be seen at several banking institutions. This has a similar feel to 2007 when banks such as Wachovia, National City, Bank of America Corp (NYSE:BAC), and Citibank, which were overcapitalized at the time, made similar requests.
It is anticipated that approval will come at some time before the end of the first quarter 2013. Once approved, Wells Fargo – as well as other banks – will be able to raise dividends and/or buy back shares for the period that runs between the second quarter of 2013 through the first quarter of 2014.
Currently, Wells Fargo & Co (NYSE:WFC) has over 5 billion shares outstanding, and it has emerged as one of the healthiest banks in the United States since the 2008 financial crisis. Between June 1, 2009 and June 1, 2011, Wells Fargo & Co (NYSE:WFC) was forced to cut its dividend to 5 cents per share per quarter. Then, in June 2011, Wells was able to begin raising the dividend back up to 12 cents per share, subsequently leading to its current 25-cent quarterly payout.
Over the past few years, Wells Fargo & Co (NYSE:WFC) has also increased its return on average assets, from 0.44% in 2008 to 1.41% at the end of 2012. In addition, Wells’ P/E ratio of 10.50 is lower than that of entities such as Bank of America Corp (NYSE: BAC) at 48.33, although Wells is considered to be a much less risky play than Bank of America for investors. Shares of Wells Fargo & Co (NYSE:WFC) are estimated to rise by more than 13% over the next 12 months.
Another of the banks to begin restoring healthier dividend payouts since the financial crisis is JPMorgan Chase & Co. (NYSE:JPM) . Between April 30, 2009 and April 30, 2011, JPMorgan Chase & Co. (NYSE:JPM) was forced to cut its then-dividend by 5 cents per share per quarter. As of the second quarter 2011, the bank was back up to paying out a quarterly dividend of $0.25 per share. This comes after a roughly $6 billion loss in the first three quarters of 2012 – the largest trading loss in JPMorgan Chase & Co. (NYSE:JPM)’s history.
U.S. Bancorp (NYSE: USB) is another banking institution that seems to be in more positive territory than in the past few years. The bank’s revenue growth has outpaced the overall banking industry average of 0.7%, and over the past year, its revenues are up by 2.5%.
