Wells Fargo & Company (WFC): The Best Bank Stock According to Hedge Funds?

We recently compiled a list of the 10 Best Bank Stocks with High Dividends. In this article, we are going to take a look at where Wells Fargo & Company (NYSE:WFC) stands against the other bank stocks with high dividends.

Bank stocks are having a moment. The S&P Banks Select Industry Index, which tracks the performance of companies belonging to different banking subsectors, surged by almost 17% in July, while the tech-focused Nasdaq fell by 1.6%. This shift is contributing to the broader market rally that has been ongoing for the past year or so. Share prices of major banks have reached all-time highs, allowing the finance sector to sometimes surpass the tech sector in driving the broader market higher on certain days. This spike in bank stocks came as a surprise to investors and analysts, considering that financial stocks have lagged behind the rest of the market for years. Just a year ago, the banking sector was in turmoil due to the collapse of Silicon Valley Bank, First Republic, and other major institutions. But as they say, the market moves in mysterious ways.

The current strength of banking stocks suggests that their recent surge is likely to be sustained rather than short-lived. Recently, the Federal Reserve Board conducted its annual stress test, a tool designed to verify that major banks can support the economy during economic downturns. The results indicated that, although large banks might face larger losses compared to last year’s test, they are well-prepared to withstand a severe recession and remain above the required capital thresholds. In addition, analysts are also presenting a positive outlook on the sector. One key reason for this bullish outlook is that recent earnings reports suggest banks are nearing the end of a slowdown in net interest income. Moreover, good news about inflation has led investors to shift their focus from tech stocks to companies, like banks, that could benefit from Federal Reserve rate cuts. Some of the largest banks, such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. have both reached all-time highs this year so far.

The enthusiasm for the sector is backed by evidence, as recent earnings reports from several banks reveal positive results for the second quarter of 2024. Morgan Stanley analyst Betsy Graseck believes that the shift in net interest income from a “headwind to a tailwind” will be a major factor driving positive operating leverage in the latter half of the year and into 2025.

Another reason for this strong outlook, according to Dave Donabedian, the Chief Investment Officer of CIBC’s private wealth division, is that "sticky money" is entering the sector for the first time in a long while. He attributed this trend to investors seeking diversification away from tech stocks and the attractive dividends offered by many bank stocks. The dividend factor is indeed accurate. Banking stocks have continued to offer generous dividends to shareholders. In fact, in 2023, the banking sector set records for dividend payouts and was responsible for half of the global dividend growth, thanks to the higher interest rates that allowed many banks to boost their profit margins. In this article, we will take a look at some of the best dividend stocks from the banking sector.

Our Methodology:

For this list, we scanned Insider Monkey's database of 920 hedge funds as of Q1 2024 and identified bank stocks that pay dividends. From that list, we picked 10 stocks that have dividend yields above 2%, as of August 4. The stocks are ranked in ascending order of hedge funds’ sentiment towards them. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

A team of bankers in suits, discussing the success of the company's banking products.

Wells Fargo & Company (NYSE:WFC)

Number of Hedge Fund Holders: 73

Dividend Yield as of August 4: 3.13%

Wells Fargo & Company (NYSE:WFC) is a California-based financial services company providing a wide range of services, including loans, mortgages, investing, and credit cards. The bank has made significant progress since the 2016 scandal that rocked the banking industry. Back then, the bank was fined $185 million by the Consumer Financial Protection Bureau (CFPB) after it was revealed that employees had fraudulently opened over two million credit card and checking accounts without customer approval. The bank continued to face misconduct allegations in 2017 and 2018, leading to increased scrutiny from various regulatory bodies.

According to analysts, as the most consumer-oriented bank—and the only one without a substantial investment banking division—Wells Fargo & Company (NYSE:WFC) may be particularly well-positioned to benefit as interest rates begin to stabilize. In the second quarter of 2024, the company reported revenue of $20.7 billion, which grew slightly by 1% from the same period last year. The company's net income came in at $4.9 billion.

Wells Fargo & Company (NYSE:WFC) is one of the best dividend stocks from the banking sector as the company has been paying regular dividends to shareholders since 1988. On July 23, the company hiked its quarterly dividend by 14.3% to $0.40 per share. In the most recent quarter, it distributed $1.2 billion to shareholders through dividends. The stock has a dividend yield of 3.13%, as of August 4.

At the end of March 2024, 73 hedge funds owned stakes in Wells Fargo & Company (NYSE:WFC), up from 72 in the previous quarter, as per Insider Monkey's database. These stakes have a collective value of more than $4.4 billion. With nearly 23 million shares, Harris Associates was the company's leading stakeholder in Q1.

Overall WFC ranks 4th on our list of the best bank stocks to buy. You can visit 10 Best Bank Stocks with High Dividends to see the other bank stocks that are on hedge funds’ radar. While we acknowledge the potential of WFC as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than WFC but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.