How Much Cash Is Wells Fargo Looking To Return To Shareholders In 2015?

Wells Fargo (NYSE:WFC) left the details of its capital plan for 2015 quite vague late last week, when it announced that the Federal Reserve cleared its plan for the year. ^[1] While the country’s largest bank in terms of market capitalization will be raising its dividend payout by 7%, it chose to leave out the size of its share repurchase program – only mentioning that it will “continue (its) strong share repurchase activity.” So what exactly does Wells Fargo have planned for this year, and why has it been tight-lipped about something nearly all banks have eagerly disclosed following the Fed’s stress tests?

The primary reason Wells Fargo did not elaborate on share buybacks separately this year is because it had an active plan to repurchase up to 240 million of its shares at the end of 2014. ^[2] This is the leftover chunk from the bank’s capital plan for 2014, in which the Fed approved a repurchase of 350 million shares (see Fed Approves Wells Fargo’s $24 Billion Capital Return Plan For 2014). If we assume that Wells Fargo will buy back all these 240 million shares in 2015, then at the current market price this represents a buyback of shares worth a little under $13.5 billion. Adding dividend payouts for the year to this figure, Wells Fargo can potentially return as much as $21 billion in cash to shareholders in 2015.

We maintain a $57 price estimate for Wells Fargo’s shares, which is slightly higher than the current market price.

See our full analysis for Wells Fargo’s stock here

Wells Fargo has had an enviable track record as one of the country’s largest banks, as it emerged from the economic downturn at roughly double its previous size – unlike most peers, who were forced to slash several parts of their business model over the period. This has shown in the bank’s dividend payout over recent years, with Wells Fargo’s current dividend payout of 35 cents a share each quarter being slightly higher than the pre-2008 figure of 34 cents. With the proposed dividend hike this year, the figure will reach an all-time high of 37.5 cents.

The table below summarizes Wells Fargo’s capital return figures for each year since 2005, and has been compiled using figures reported in annual reports:

As can be seen from the table above, Wells Fargo has increased dividends aggressively since 2010, with the figure jumping from just over $1 billion in 2010 to almost $7 billion in 2014. The bank also sped up its share repurchases over the period, because of which the total cash returned to investors in 2014 reached a record high of $16.3 billion.

Wells Fargo’s capital plan for 2015 includes a 7% increase in quarterly dividends from 35 cents a share to 37.5 cents starting from Q2 2015 (so $1.475 in total dividends per share in 2015). Considering the bank’s 5.2 billion outstanding shares, this works out to roughly $7.5 billion in dividends. As for the share repurchase plan, Wells Fargo’s board authorized the repurchase of 200 million shares in October 2012 and another 350 million shares in March 2014, with the Federal Reserve ratifying the move on both occasions. ^[2] With these plans running over multiple years, the bank had remaining authority to buyback 240 million shares as of the end of 2014. At current market prices, the bank could spend almost $13.5 billion to repurchase these shares. This is nearly 45% higher than the buybacks executed in 2014.

We believe that the actual repurchases for the year will be slightly lower, at around $11 billion. Combined with the $7.5 billion in dividends, we expect Wells Fargo to return around $18.5 billion to investors in 2015 – representing 80% of the $23.2 billion in earnings we estimate for the bank this year. We include dividend payouts as well as share repurchases in our analysis of Wells Fargo in the form of an adjusted dividend payout rate as shown in the chart below. You can understand how a change in the bank’s adjusted dividend payout affects its share value by making changes here.

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1. Wells Fargo Receives No Objection to its 2015 Capital Plan, Wells Fargo Press Releases, Mar 11 2015 [↩]
2. 10-K SEC Filing [↩] [↩]