Wells Fargo: Financial Winner

An important concern for investors if the "Bush tax cuts" expire, is the end of the 15% federal income tax rate limitation on qualified dividend income, which includes most dividends on common and preferred stock. Under the current rules, if an investor's adjusted gross income keeps him or her under in the 15% tax bracket, the investor actually pays no federal taxes on the dividend income, so nearly all investors could see a massive new haircut to their dividend income.

Many companies are acting accordingly, by moving up quarterly dividend payments or making special dividend payments before the end of the year. For example, City National Corp. (CYN) of Los Angeles on Nov. 15 announced that it would move its regular 25-cent quarterly dividend for the fourth quarter, that would be normally be paid in January, to Dec. 18. The bank holding company also announced a special 25-cent special dividend, payable on the same day.

City National closed at $48.59 Thursday, returning 12% year-to-date. The shares trade for 1.1 times tangible book value, according to Thomson Reuters Bank Insight, and for 12 times the consensus 2013 earnings estimate of $3.94 a share, among analysts polled by Thomson Reuters. Based on the regular quarterly payout, the shares have a dividend yield of 2.06%.

Jefferies analyst Ken Usdin on Thursday said that the "housing recovery still has legs," but added that "housing becomes more intertwined with politics in coming weeks given increased chatter that those earning over $250k per year could see limitations on mortgage interest tax deductions."

Wells Fargo's Return of Capital.

Wells Fargo's shares have now returned 24% year-to-date, following a 10% decline during 2011.

The shares trade for 1.6 times tangible book value, according to Thomson Reuters Bank Insight, and for nine times the consensus 2013 EPS estimate of $3.63. The consensus 2014 EPS estimate is $3.94. Based on a quarterly payout of 22 cents, the shares have a dividend yield of 2.65%.

Wells Fargo trades much higher to tangible book value than most other large-cap bank stocks in the current environment, reflecting its strong and consistent earnings performance. Over the past five quarters, the company's operating returns on average assets have ranged between 1.27% and 1.46%, and its returns on average tangible common equity have ranged between 15.59% and 16.85%, according to Thomson Reuters Bank Insight.

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