In July, Wells Fargo (NYSE:WFC) announced that its quarterly dividend payment would be just $0.10, down from the $0.51 that it was paying previously.
That’s a sharp 80% cut but a reduction wasn’t unexpected given that financial stocks have been struggling amid the COVID-19 pandemic. Combined with low interest rates and an economy that’s in the midst of a recession, these aren’t exactly great times for financial institutions.
However, this also isn’t unchartered territory for Wells Fargo, either. In 2009, during the financial crisis, the bank chopped its dividend payments from $0.34 to just $0.05, for an even heftier cut of 85%.
By 2014, the company would get its payouts up to $0.35, higher than they were before the cut. And the bank would go on to continue raising its payouts in the years afterward.
And so while the dividend’s low today, it’ll likely be a temporary setback. As the economy recovers from COVID-19, the bank will get back to hiking its payouts, it’s just a matter of how long it’ll take for that to happen. At an annual dividend of $0.40, Wells Fargo investors are earning just 1.7% today.
Shares of this top bank are down more than 55% in 2020 and the stock’s trading at just 0.6 times its book value and a forward price-to-earnings multiple of 11. It’s a cheap time to buy Wells Fargo stock and if you’re a long-term investor, you shouldn’t worry too much about its dividend today as it’s a good bet to rise in the years to come. And buying the stock at a low price today could also set you up for some great capital gains in the future.
