U.S. lender Wells Fargo & Co (WFC) plans to cut its dividend in the third quarter to shore up its finances as it grapples with the impact of the coronavirus pandemic.
The U.S. bank said it expects its common stock dividend in the third quarter to be reduced from the current level of $0.51 per share. The extent of the dividend cut will be announced when Wells Fargo releases its second-quarter financial results on July 14. The move comes after the U.S. Federal Reserve announced that it would put a limit on dividends for banks based on earnings.
“There remains great uncertainty in the path of the economic recovery and though it’s difficult to accurately predict the ultimate impact on our credit portfolio, our economic assumptions have changed significantly since last quarter,” said Wells Fargo CEO Charlie Scharf. “Accordingly, we expect our second quarter results will include an increase in the allowance for credit losses substantially higher than the increase in the first quarter.”
Scharf added that the bank, which has $1.98 trillion in assets under management, will continue to take necessary steps to maintain strong capital and liquidity levels to improve the company’s earnings.
The bank’s shares have been hit hard, plunging 52% so far this year. The stock was up 1.4% to $25.70 at the close on Monday.
Five-star analyst Gerard Cassidy at RBC Capital today lowered the firm's price target to $29 from $35 and reiterated a Sell rating on the stock following the dividend cut and net interest margin pressure.
Cassidy cut the firm’s FY20 EPS outlook to 67 cents from $1.47 in view of the current economic conditions, a higher loan loss provision and lower net interest income. The analyst noted that Wells Fargo cannot expand its balance sheet outside the Paycheck Protection Program loans whereas its peers can expand the balance sheet to partially offset net interest margin pressure.
Overall, the stock has a Hold analyst consensus which breaks into 9 Hold ratings and 4 Sell ratings versus 3 Buy ratings. The $29.92 average price target implies 16% upside potential from current levels. (See Wells Fargo stock analysis on TipRanks).
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