Wells Fargo cuts dividend, stock soars on rosy outlook

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Wells Fargo (WFC) announced this morning that it is cutting its dividend by 85 percent in an effort to retain about $5 billion per year in cash. "This was a very difficult decision but it's absolutely right for our Company and our shareholders because it will further strengthen our ability to grow market share and to continue our long track record of profitable growth," said President and CEO John Stumpf in a press release announcing the move.

The news of the dividend cut was accompanied by a relatively rosy update on the company's business, designed to sell the dividend cut as prudent and opportunistic -- a way of retaining cash to expand market share and take advantage of good values in potential acquisitions rather than a necessary step to remain solvent.


Because of that, the stock is trading up more than nine percent today. Late last month, I wrote that Wells Fargo should cut its dividend even if it sent the stock plunging. Wells Fargo has actually managed to increase investor confidence in its finances while cutting its dividend, and that's a pretty impressive PR feat.

The company added that costs related to the Wachovia merger have been lower than expected.
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