Diversification fit:
The previous picks for the portfolio included:
- An industrial conglomerate
- A generic-pharmaceutical powerhouse
- A provider of staple foods
- An auto parts distributor
- A safety equipment provider
- A high-tech (software) titan
- A toy maker
- An electric utility
- A shipping company
- A pipeline giant (though this one might actually get away)
- A drugstore
- A semiconductor superstar
- A two-for-one railroad special
- A fast-food juggernaut
- A medical device maker
- A supplemental insurance writer
- An air chemicals business
- A defense contractor
- An industrial engineering and electrical equipment company
As the first bank to make its way into the portfolio, Wells Fargo & Co (NYSE:WFC) fits pretty well from a diversification perspective.
Why pick it over its peers?
Still, as there are plenty of banks out there, it raises the question: Why select this one instead of another?
One of the biggest reasons is that, as mentioned above, neither Citigroup Inc (NYSE:C) nor Bank of America Corp (NYSE:BAC) has gotten its act together well enough to resume raising its dividend. While fellow banking giant JPMorgan Chase & Co. (NYSE:JPM) has been able to boost its dividend back up out of the basement, JPMorgan Chase & Co. (NYSE:JPM) also has held its dividend steady for the past five consecutive quarters. Contrast that with Wells Fargo & Co (NYSE:WFC), which was able to raise its dividend for its most recent payout, and Wells Fargo is signaling a far stronger position than those peers.
As the ability to pay and regularly raise dividends is a key feature of what makes a company worth owning for the iPIG portfolio, that’s a significant plus for Wells Fargo.
What are the risks?
Of course, no investment is without risk. Another financial crisis or acquisition of overly damaged goods can force Wells Fargo to again slash its dividend — or even worse. Additionally, as a California-based financial institution, Wells Fargo is at risk from that state’s geology (earthquakes), wild swings in its housing market, and net outward migration from the state.
Additionally, banks are among the first to feel the impacts of shifts in Federal Reserve policy, as the Federal Reserve deals directly with banks. If and when the Fed starts easing up on the aggressive stimulus it has been pumping into the banking system in the past few years, Wells Fargo could feel some pain, along with the other banks.
The article Why Wells Fargo’s Stock Is Worth Owning originally appeared on Fool.com.
Fool contributor Chuck Saletta has an options position in Bank of America. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo.
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