Wells Fargo Stock Is Falling, and Here’s Why It Might Cut Its Dividend
By Teresa RivasJune 24, 2020 10:45 am ET
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Wells Fargo stock has slumped nearly 50% in 2020, and Raymond James warns that the bank’s problems aren’t over—nor are those of its income-hungry investors.
Analyst David Long reiterated an Underperform rating on Wells Fargo (ticker: WFC) on Wednesday. His main concern is a decline in earnings power. He predicts a 14% decline in revenue this year, followed by a 0.3% slip next year. The 2021 figure would put it in line with peers, but a predicted double-digit fall in 2020 is much more than the average 0.8% decline predicted for the group.
Long also estimates that the bank’s income before setting aside money for taxes and provisions for potential band loans will tumble 27%, from $27.5 billion in 2019 to $20.2 billion in 2021. That is much higher than the 7% median decline for its peers and would mean that Wells Fargo would see “the largest decline among all of its mega and super regional bank peers over the next two years.”
There are other near-term headwinds, as well, including rising credit costs, higher expenses, pressure on net interest margins, and a ceiling on its prospects. “With a still tarnished reputation challenging its ability to grow revenue and still work to do to get out from underneath regulatory consent orders, we expect fundamentals will remain challenged relative to peers.”
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All of this is to say that a dividend cut might be inevitable. He is estimating a 31% dividend reduction, to 35 cents a share quarterly, beginning in the third quarter of this year. “With a dividend yield of roughly 7.5% (among the highest in our coverage universe), we believe the market is also pricing in the possibility of a cut,” he concludes.
Wells Fargo declined to comment.
If Wells Fargo did cut its payout, it wouldn’t be the first company to do so, or even the first bank to feel pressure on its yield. In fact, financial institutions in Europe were required to lower their dividends, though U.S. banks have been hesitant to do so.
Investors hoping to get more clarity on Thursday from the latest round of stress tests shouldn’t hold their breath.
Wells Fargo shares were down 2.8% to $26.46 Wednesday morning. The S&P 500 was down 1.5%.
Write to Teresa Rivas at firstname.lastname@example.org
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