Company Description: Wells Fargo & Co provides banking, insurance, investment, mortgage and consumer finance services throughout North America.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to >MMA
Other: WFC is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. WFC has a strong customer base and a well diversified capital base. Recently, WFC prevailed in a legal dispute with Citigroup (C) over its planned purchase of Wachovia (WB). This will provide WFC exposure in the fast growing southeasten portion of the U.S. WFC should to continue to gain market share. WFC risks would include credit deterioration spreading to some of its other asset classes.
Conclusion: WFC lost one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of three Stars. This quantitatively ranks WFC as a 3 Star-Hold.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $32.59 and WFC's NPV MMA Diff. would still be around the $7,500 NPV MMA Diff. that I like to see. At that price WFC would yield 3.99%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $7,500 NPV MMA Differential I'm looking for, the calculated rate is 6.0%. This dividend growth rate is slightly below the 8.7% used in this analysis.
What a difference a few days makes. When I selected WFC for an analysis it was a 5 Star-Strong Buy, then its price increased above the 5% premium level and lost a net of 2 Stars. If I was looking to open or add to a position in WFC, I would wait for it to dip below $26.44.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I had no position in WFC (0.0% of my Income Portfolio) .
What are your thoughts on WFC?