Wells Fargo (NYSE:WFC) Is Increasing Its Dividend To $0.40

The board of Wells Fargo & Company (NYSE:WFC) has announced that it will be increasing its dividend by 14% on the 1st of September to $0.40, up from last year's comparable payment of $0.35. Despite this raise, the dividend yield of 2.3% is only a modest boost to shareholder returns.

See our latest analysis for Wells Fargo

Wells Fargo's Earnings Will Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible.

Wells Fargo has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but Wells Fargo's payout ratio of 28% is a good sign as this means that earnings decently cover dividends.

Looking forward, EPS is forecast to rise by 27.8% over the next 3 years. Analysts forecast the future payout ratio could be 31% over the same time horizon, which is a number we think the company can maintain.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from $1.20 total annually to $1.40. This works out to be a compound annual growth rate (CAGR) of approximately 1.6% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Wells Fargo May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Wells Fargo hasn't seen much change in its earnings per share over the last five years. While growth may be thin on the ground, Wells Fargo could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Wells Fargo's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Wells Fargo that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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