Wells Fargo showcased just how sensitive the bank is to the current climate by slashing its dividend output by 80%. That wasn’t a typo. Wells Fargo cut its dividend from $0.50 per share to just $0.10. This will be paid out on September 1, but will investors be hanging around to collect? I won’t be selling Wells Fargo … for now.
We already knew the Wells Fargo dividend would be hit. The bank said as much in the Q2 earnings report. The issue with the bank is two-fold, really. Not only does it have to endure the COVID-19 breakout like most companies, but its reputation tanked due to the scandals. That’s not a great mix.
And while the federal reserve in the U.S. temporarily released Wells Fargo from its asset cap, things haven’t gone smoothly for the bank. Like other lenders, Wells Fargo has increased the loan loss provisioning ahead of widespread defaults, which are expected to occur should the economic damage from the pandemic continue to worsen.
Why I’m not selling Wells Fargo
Wells Fargo (or Fells Fargo as I like to refer it right now) is not in good shape, but neither are other companies on my portfolio. Using my dividend tracker, I’ve seen a 15% drop in the value of my holdings … a considerable loss should I look to sell. But all this loss is unrealised and thus I’ll continue to hold with the hope that things improve on the other side.
For now, the bank is believed by some to be overvalued. Compared to the market, it’s rated as overvalued and not a great investment decision. I don’t follow this thought since earnings weren’t terrible. Tangible book value per share (TBVPS) dropped just $1.02 to $31.88. Things aren’t set to get any better for the banking sector in 2020 either. But if you believe the bank will recover, the current stock price could be the invitation you require.
The dividend is shockingly bad right now. At just 1.6% as the yield, this isn’t a holding you should go for if you’re looking to expand your portfolio with some exciting new dividend highs. But I believe this to be but a temporary measure to help weather against the storm. Wells Fargo should come out the other side with a dividend increase or two.
I shan’t sell and realise the loss I’ve been hit with, nor will I be buying any more right now until I see a clearer picture on how it’ll will perform for the remainder of the year. COVID-19 is always in-mind too, as is the banking sector as a whole.