Recent Buy – WFC

GA

WFC posted flat earning today beating the estimate by $0.01 instead of 14% from JPM or other banks. On top of that, Berkshire Hathaway or Warren Buffett has to sell the stocks to stay below 10% ownership to avoid SEC regulation the company as a bank. Not only that, WFC is facing a lot of legal issues by pressing bankers to sign customer up for unwanted credit cards and accounts. The CEO stepped down because he tried to cover up. The WFC board is pressing the old board to give back some $60M+ in bonuses.

With that the stock tanked all the way from $58.87 all the way to $51.32. I used to own 1000 shares of WFC when it was $35. I made some sells, then bought, then sell again. This stock gave me so much profit, that as soon as I have some more capital, I couldn’t help but to have it back on my portfolio.

I bought 10 Shares of WFC at $51.xx, yielding ~3%, PE 13 vs S&P 20, payout ratio 37%

  • Dividend Challenger WFC quickly restored its dividend to pre-recession levels and now yields an attractive 3%.
  • As a dividend growth investor, I like the company’s commitment to returning shareholder value through dividends and share repurchases.
  • I am indeed a 12+ years of WFC customer.

    Sumary:

  • Wells Fargo & Company (NYSE:WFC) is a diversified, community-based financial services company with $1.8 trillion in assets. Founded in 1852 and headquartered in San Francisco, the company provides banking, insurance, investments, mortgage, and consumer and commercial finance through 8,800 locations, 13,000 ATMs, the internet, and mobile banking, and has offices in 36 countries to support customers who conduct business in the global economy.

    WFC is a Dividend Challenger with a 6-year streak of dividend increases and a 10-year dividend growth rate of 4%. The company cut its dividend in March 2009 to preserve capital in the midst of the Great Recession, and resumed dividend increases in 2011. WFC pays quarterly dividends of 38¢ per share in the months of March, June, September and December.

Risks:

  • Well, in the near term customers are staying away, we probably don’t see any big move in customers sign up.
  • Brick-and-mortar banking is changing. We see peer-to-peer lending. Everyone are becoming a bankers – Walmart, Amazon, Apple, Paypal, Square, even Samsung??!! Yup! Mobile banking has becoming a norm.

***With that said, I’m still doing most of my banking at my local Wellsfargo bank. They still offer free checks for my checking account. They still offer 100 trading free per year on my trading account. I’m not going anywhere anytime soon.

  • Earning reports from everyone today said one thing: Slow down – Slow down is affecting every single bank in the banking business. 3.6% growth in lending. That’s the slowest since the recover from 2008 recession. You can see this even with JPM, BAC, C, GS all of them have been buying their stock, even though earning has been “beating” estimates, but all of that “growth” aren’t really actually growth. The millenials aren’t buying houses, wages are stagnant
    • The one thing that is going well for banks are interest rates are going up, but if wages aren’t jumping as much as inflation, how could anyone afford to buy a home?! 
  • WFC’s 15% loan exposure to oil and gas industry lending is not going to go away if the Oil surplus in the US still persisting

How WFC stands against competitors:

Banks                                      WFC                     BAC            JPM            C

Return on Asset                    1.19%                    0.83%         1.02%     0.85%

Return on Equity                 11.18%                  6.85%         9.86%      6.69%

PE                                            12.96                    15.02%          13.69    12.31

WFC lends out a lot more than other retail banks, therefore they are a lot more efficient at making money, that translate into the return on Asset and equity. That is why when the lending is slowing, it affects WFC more than anyone in the industry. However, I feel like in the longterm, that translate to more profit. Some lending is better than no lending, some profit is better than no profit. So, WFC is more solid to own in longterm compare to the competitors. But I’m long on all the banks. 😛

WFC may fall back to $45 mark. If that is the case, I’ll buy a couple hundred shares. 😛 In the mean while, I’ll just collect my $15 in dividend per year with my 10 shares.

What do you think about WFC buy? Do you think WFC will recover from this? Are you buying banks at all in this environment?

 

 

 

 

GA

4 Comments

  1. Wow… you are busy with the buys. I’m impressed. It’s comforting seeing many in our community still buying every month no matter what’s going on in the market or world. I like it. Nice pick up too. WFC is along time hold for me.

    • You’re right about the uncertainty in the world translate to the gloomy market.
      US dropped the Mother of all Bombs in Afghanistan, China moved 150,000 troops to the North Korean Border, Bexit is moving forward in May, France is on the verge of turning over to separatist (anti-muslim immigration), Donald Trump is helping withe the uncertainty … A correction is imminent. But I buy when I see value, but I also want to average down or up.

      All of this won’t matter if you value “time in the market” instead of “timing the market” approach. You’d probably earning a lot more if you time the market right. But you’d also missing out if you’re not having any “time” in the market. I’d like to do a little bit of both. I want to always have some cash on hand if “the time” is right.

  2. I’m a long-time WFC customer (16 years) and previously owned the stock, but I sold when the scandal hit and the management seemed to be in denial. I wish I could untangle myself from WFC, but it is a lot of work to do so. At least we’ve managed to move our IRA’s to another brokerage.

    What I’m saying is owning WFC for the 3%+ yield should be fine in the long-run, because many long-time customers would stay with the bank, rather than having to deal with the challenges of leaving.

    Take care and happy investing!

    • I probably will not move my account anywhere anytime soon as previously disclosed that I have 100 trades free under each accounts. Also, ever since BAC cut cost, they’ve closed all of the drive thru, so I stopped going to BAC for basic banking needs.

      With that said, I know a lot of their customers are like myself, they aren’t going anywhere.

      My other concern is WFC is up to increase dividend, I don’t know if new management will still go down on that path and increase by $0.005 or 1/2 of a penny or they will issue share buyback or both, or none of it. They usually announce it in April and new dividend in May. So I’m looking forward to that, so buying WFC ahead of the news maybe a good move or not given the unstable world right now.

      But long term WFC will be just fine.

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