Tuesday, July 24, 2007

Dividends Talk: Wells Fargo, Good Very Good

For those of you who have been on the Wells Fargo dividend watch for the last 30 days, the oracle has spoken, and the news is good, very good. Although, the headlines tomorrow will be filled with tales of the woes of subprime loans, mortgage defaults, and the Dow's 200 point fall, there is good news in Mudville. Wells Fargo, which is as deep into the mortgage business as any bank in America, and thus, not only sees the data but lives in it, has raised their dividend by 10.7%. In my previous blogs on this subject, I said anything above a 9% hike would be a signal that WFC believes that a bottom for the mortgage mess is in sight, but more importantly, that they are gaining market share and will come out of this real estate bubble stronger than they went in. That is a remarkable thought in itself, since WFC is already one of the highest rated firms in the US. There will be those who argue with me that this 10.7% hike is not connected to their forward view of their business prospects , but that it is a payback for the past year. That is bunk. Last year, with earnings running in the mid-double digits, they raised their dividend only 7.6%. I said in an earlier blog that that soft hike was one of the reasons that we concluded that the housing slump was going to be longer and deeper than was generally thought at the time. Our thinking then was, if WFC was a bit bearish on their future prospects, that was news because they have had such a great record over the past two decades at gauging the business climate. It is important to note that WFC is not a pure mortgage bank. They now cover the financial spectrum of financial services, so this solid dividend hike is not a pure reflection of the mortgage business. Having said that, their mortgage busines is so big that if they were bearish on this part of their business, it would have resulted in a smaller dividend hike. I'm convinced of that. Bank of America and Wachovia are due to announce their dividend hikes in the coming months. With WFC having put the pressure on them, with this double-digit increase it will be interesting to see the sizes of those companies' dividend hikes. Dividends talk you know. You just have to listen.