Don't Bank on More Dividend Boosts

Wells Fargo(WFC Quote) made a bold move in a shaky market by boosting its dividend by 10% Wednesday, but observers say few banks will follow suit amid a still-stressed housing and credit environment.

Wells Fargo shares surged more than 30% Wednesday, after the San Francisco-based bank declared a quarterly common stock dividend of 34 cents a share, up from 31 cents a share. Wells' second-quarter profit of $1.75 billion, or 53 cents a share, beat earnings estimates by 3 cents share, despite a 23% drop from a year ago.

The company's dividend increase and better-than-expected earnings boosted the wider financial sector Wednesday. The NYSE Financial Sector Index shot up 8.1% to close at 5,998.41.

By raising the dividend, Wells wanted to accomplish two things, says Cassandra Toroian, president and chief investment officer of Bell Rock Capital: to "restore confidence in their company/balance sheet" and provide an impetus for short-sellers to move along and target someone else.

"I doubt that we will see many more dividend increases, but you never know," Toroian adds in an email. She does not own shares of Wells Fargo.

Andrew Marquardt, a senior vice president and analyst at Fox-Pitt Kelton Cochran Caronia Waller, echoed Tororian's comments, believing that Wells Fargo is likely to be an exception this quarter.

"We believe [the] results reflect ability to manage through [the] tough environment, flight to quality status among customers, and balance sheet strength," he writes in a note. "In [an] environment where capital is king, we believe [Wells Fargo] stands out in terms of level and generation capacity."

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