The company traces its history back to the Old West. It was founded in 1852 and is now headquartered in San Francisco. Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 branches, 12,000 ATMs, and the Internet (wellsfargo.com). It has offices in more than 35 countries and more than 265,000 employees. The company claims that it serves one in three households in the United States.
Wells Fargo has approximately 5.3 billion shares outstanding.
Why we like it: Wells Fargo is one of the most solid financial institutions in the U.S. According to several accounts, it was the only major banking company to refuse government bail-out money during the crash of 2008-09 because its executives felt the payments were a subsidy to the bad management of others. Washington made them take the money anyway in the interests of having the industry present a united front. Wells Fargo repaid the $25 billion it received in December 2009.
One of the things the company did with the bail-out money was to buy the assets of ailing Wachovia for $12.7 billion in what has been described as a shotgun marriage orchestrated by the U.S. Treasury Department. As a result, WFC emerged as the second-largest bank in the States.
Today the company has one of the best debt ratings of any firm in the financial services field. Standard & Poor's rates it A+ for long-term issues, A-1 for short-term issues, A+ for senior unsecured notes, and A for subordinated notes.
The share performance has been choppy but the overall trend during the past year is up. The company recently announced a 14% dividend increase to $0.25 per quarter ($1 a year) to yield 2.8%.
Also good news for investors is the fact the company is actively buying back its own shares. Wells Fargo purchased 42 million shares of common stock in the fourth quarter of 2012 and an additional estimated six million shares through a forward repurchase transaction expected to settle in the first quarter of 2013
Financial highlights: The company reported year-end 2012 financial results on Jan. 11 and they were very impressive. Revenue was a record $86.1 billion, up 6% from 2011. Net income also set a new record at $18.9 billion ($3.36 a share), both up 19% from the year before. This means the company is trading at about 10.5 times trailing earnings. According to Yahoo! Finance, analysts expect earnings of $3.64 a share this year and $3.89 in 2014.
In terms of its capital position, the company said that Tier 1 common equity under Basel I increased $3.3 billion from the prior quarter to $109.1 billion. That brought the with Tier 1 common equity ratio to 10.12% under Basel I as of Dec. 31. The estimated Tier 1 common equity ratio under the current Basel III capital proposals is 8.18%.
Risks: There are still lawsuits arising out of the tainted mortgages scandal overhanging the industry and Wells Fargo is a party to some of them. It will probably take years for these to work their way through the legal system.
The entire U.S. banking system continues to be under a cloud and another credit crisis, while unlikely at this stage, would certainly hit the share price. Wells Fargo stock fell as low as $8.61 in March 2009 at the nadir of the market crash. Its highest point was $39.80 in September 2008, just before Lehman Brothers collapsed and the bottom fell out.
Dividends: As mentioned, the shares pay a quarterly dividend of $0.25 with the next payment due on March 1 to shareholders of record on Feb. 1.
Summing up: Wells Fargo becomes our Primary Core U.S. financial stock. Buy for long-term growth potential and some cash flow.
Action now: Buy. The shares closed on Friday at $35.14.