Dividend Increase | Wells Fargo

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Wells Fargo for another dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On June 27th the second round of the CCAR tests came out that covered the capital return plans, dividends and share repurchases, for 18 large banks that operate in the United States.  For CCAR, Wells Fargo intends to increase the quarterly dividend payment from $0.45 up to $0.51 per share per quarter.  That's a huge 13.3%! 

The dividend hasn't officially been declared yet, although I believe that Wells Fargo has every intention of doing so with their next dividend payment when it's declared in July.  Wells Fargo has increased dividends for 8 consecutive years giving them the title of Dividend Challenger.  Shares currently yield 4.31% based on the new quarterly payout.

Since I own 55.024 shares of Wells Fargo in my FI Portfolio this raise increased my forward 12-month dividends by $13.21.  I also own 30.992 shares in my Roth IRA and this raise boosted my forward dividends for that portfolio by $7.44.  This is the 12th dividend increase I've received from Wells Fargo since initiating a position in August 2011.  Cumulatively, the organic dividend growth from Wells Fargo has been 325% over that time.  According to US Inflation Calculator, the cumulative rate of inflation over that same time is just 13.8% so Wells Fargo is handily beating inflation.

A full screen version of this chart can be found here.

Prior to the housing bust and resulting financial crisis, Wells Fargo had increased their dividend at a very rapid pace.  Unfortunately, some of that dividend growth was fueled by the excesses of the early/mid 2000s.  After the massive dividend cuts in 2009 and 2010 and cooler heads prevailed, Wells Fargo returned to regularly growing its dividend.  Since then dividend growth has fluctuated substantially but it's still coming in at over 7% per year over the last 5 years.  Going forward I would expect dividend growth to be in the 4-8% per year range more often than not.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1995 can be found in the following chart.  

A full screen version of this chart can be found here.

*2019's dividend growth assumes the new quarterly payout of $0.51 per share is maintained for the rest of 2019.

Based on dividend yield theory Wells Fargo appears to be significantly undervalued with a forward dividend yield of ~4.3%.  That's significantly higher than the 5 year moving average of 2.95%.  At this time Wells Fargo seems to be like a great candidate for further research for anyone looking to add some financial exposure to their portfolio.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

While it's likely just my mind seeking for patterns where there aren't any, I do have to admit that the ramp up in dividend yield over the last year looks eerily familiar to the ramp up that was seen from late 2007 to late 2008.  Is it likely to mean anything?  No.  Especially since Wells Fargo is still dealing with the fraudulent account scandals and if I recall still looking for a new full-time CEO.

Wrap Up

This raise increased my forward dividends by $13.21 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.91% this raise is like I invested an extra $452 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

Thus far in 2019 I've received 27 total increases from 24 of the 54 companies in my FI Portfolio.  Combined those increases have raised my forward 12-month dividends by $184.15.

My FI Portfolio's forward-12 month dividends increased to $7,025.20.  Including my FolioFirst portfolio's forward dividends of $100.13 brings my total taxable accounts dividends to $7,125.33.  My Roth IRA's forward 12-month dividends remain at $539.83.

And just like that I'm back up over $7,000 for forward dividends in my FI Portfolio.  I made a purchase on Friday last week that helped to push them back up which I will detail in the coming days.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Wells Fargo's can be found here which includes the dividend history (as far back as I can find without really hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Wells Fargo?  What about any of the other big US banks?

Please share your thoughts below.