Thursday, December 15, 2016

Recent Sell: Wells Fargo

Wells Fargo & Company (NYSE:WFC) is a diversified, community-based financial services company with $1.9 trillion in assets. Founded in 1852 and headquartered in San Francisco, the company provides banking, insurance, investments, mortgage, and consumer and commercial finance through approximately 8,600 locations, 13,000 ATMs, the internet, and mobile banking, and has offices in 42 countries.

I bought shares of WFC in June 2016 and locked in a yield on cost (YoC) of 3.27%. After my purchase, the stock price steadily climbed until news broke about the accounts scandal in which bank employees opened accounts without customer's authorization. The stock price dropped more than 12%, then recovered nicely along with the market after Trump's election victory.

Now that WFC is trading well above my entry price, I've decided to close my position.

Bad headlines seem to be continuing for WFC as the company failed its revised living will test. Federal regulators consider WFC incapable of dismantling itself in a crisis without government intervention and are prohibiting WFC from expanding internationally and buying nonbank subsidiaries.

The scope of the accounts scandal is shocking. Bank employees opened some two million deposit accounts without authorization, creating fake PINs and e-mail addresses and even moving funds from customer's accounts, sometimes resulting in customers being charged overdraft fees. Furthermore, employees submitted applications for more than 500,000 credit card accounts without the customer's knowledge or consent. The company was fined $185 million and it fired more than 5,000 employees related to this practice.

The fallout from the scandal could cost WFC billions of dollars in revenue and trim its customer base by up to 30 percent. And the fallout could negatively impact the bottom line for years to come. Worst of all, WFC has breached the trust of its customers and has damaged its brand and reputation. Rebuilding trust and rehabilitating its brand and reputation will not be quick and easy.

Here is a price history chart of WFC showing my buy and sell prices:


Trading Summary

2016-06-24Bought: 54 shares of WFC at $46.51 per share:$2,511.53
2016-09-01 Dividend on 54 shares at 38¢ per share: $20.52
2016-12-01 Dividend on 54 shares at 38¢ per share: $20.52
2016-12-14
  Sold 54 shares of  WFC at $54.48 per share:
$
2,941.65
Capital gain:
$
430.12

Dividends received:
$
41.04

Commissions/fees/taxes:
$
6.06

Net gain:
$
465.10

I made a net gain of 18.76% on the original amount invested, or 39.6% annualized.

Conclusion

WFC's 52-week trading range is $43.19 - $58.02 and I'm selling near the 52-week high. According to Finbox.io, using two dividend discount models (multi-stage and stable growth) and P/E multiples analysis, WFC is worth $42.25. My sell price is about 29% above that fair value estimate, so I'm quite happy to get out here:
My own fair value estimate is $54.07, which is near the midpoint of the Wall Street targets, as illustrated in purple above.

Closing my WFC position removes $82.08 from DivGro's projected annual dividend income (PADI), which now totals $12,135.

I'm happy to report that I've reached my end-of-year goal of increasing PADI to $12,000!

Thanks for reading! Do you own WFC and, if so, are you holding onto your shares or selling them?
Please let me know what you think in the comment section below. 

6 comments :

  1. Nice job hitting your $12k goal. I've been thinking of selling my WFC as well. I'm holding on a bit to see what happens with rates on the rise and a bank friendly president coming in. What are you going to do with the money? Buy another stock or sell puts?

    ReplyDelete
    Replies
    1. Thanks, Investment Hunting! The $12k goal is a nice one to achieve, as that gives me, on average, $1,000 of dividend income per month. Good luck with your WFC investment. You'll probably make more gains out of that investment with the rising interest rates. I decided to move on. I'll probably use the money to round out some of my holdings for options trading.

      Delete
  2. Can I ask what made you decide to buy 54 shares?

    ReplyDelete
    Replies
    1. At the time, I bought stocks in batches of about $2,500. In fact, WFC was probably the last of these buys. Now I look for multiples of 100 shares to allow covered call trading.

      Delete
  3. Way to go! I am going to hold and see what happens as interest rates go higher and higher (ideally). Great job DivGro!

    ReplyDelete
    Replies
    1. Thanks for commenting and all the best with your WFC investment in the rising interest environment. You'll probably be able to squeeze more gains out of your investment! As for me, I decided to move on...

      Delete

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