I uncover a high-quality dividend growth stock that appears to be undervalued each week for Daily Trade Alert, which is a site that focuses on dividend growth investing, stocks, and unique investment opportunities. I’ve been writing for them for years now, and they’re just great over there. Each week, I publish an excerpt of my work, when it’s fresh off the press. That way, you readers are given the opportunity to check it out. The content is totally free. I hope you enjoy!
A scandal can pop up at any time and burn a business.
I’m reminded of that over and over again.
The most recent reminder came about when video surfaced of a doctor from Louisville, KY being dragged down the aisle of United Continental Holdings Inc. (UAL) jetliner after said doctor refused to give up his paid-for seat when it came to light that United Continental overbooked their flight.
United Continental apparently had to make room for their own employees – and they tried to find volunteers to give up their seats.
When they couldn’t find volunteers, they started picking people at random.
Image courtesy of: Stuart Miles at FreeDigitalPhotos.net.
Keep Reading… links to your previous blog entry on this site and not the new article on DailyTradeAlert!
http://dailytradealert.com/2017/04/16/undervalued-dividend-growth-stock-of-the-week-131/
Delete my comment or don’t approve it. Didn’t know how else to tell you 🙂
DJ,
Thanks for advising me of that. Another reader noted that on Facebook, so I corrected it shortly after the article was published.
Thanks again! 🙂
Cheers.
Such a great company. That might sound hypocritical considering that I’ve written TWO articles attacking it from the scandal, but I do think that this is a great business to own shares of. I’m already a shareholder and would love to add to my stake. I just want them to treat their employees better in order to avoid fraudulent accounts being opened in the future. Ethical business is good business and it’s the right thing. Thankfully banks don’t make money from deposits and this “cross-sell” didn’t add anything to the bank’s bottom line, so I’m not worried about some mythical revenue spigot suddenly being turned off.
Question: What do you think about GIS at current prices. Not a bank, I know, but I was just curious. For someone looking to average down on WFC and GIS, but only having the funds for one, which one would YOU choose?
Sincerely,
ARB–Angry Retail Banker
ARB,
Yeah, it’s a real shame that the whole thing had to happen. It was really the way the compensation was structured. Of course employees are going to find a way to maximize their pay within a given platform. Stumpf being almost indifferent to the whole thing made it even worse. I’m glad he’s gone. Nonetheless, it’s not like the bank is going anywhere. And I doubt we’ll be talking about this in a few years.
As for GIS, you could make an argument for the stock being fairly valued or overvalued, depending on how you look at it. Making an argument for undervaluation would be tough, though. That said, I quite like GIS in terms of the business model. Cereal isn’t what it once was, but they continue to diversify their product lineup. I actually initiated a position in the company not too long ago. If I didn’t already have 90 shares of WFC, I would’ve bought WFC, however. So it’s really a question of overall portfolio construction. All else equal, WFC seems to be a better investment from this baseline, but rarely is all else equal. So it’s an individual call. GIS notably has a yield that’s about 40 basis points higher than WFC, so that’s certainly worthy of consideration when matching them up.
Thanks for dropping by!
Best wishes.
Thanks for the input on averaging down on WFC vs GIS.
To make note of something with the Wells Fargo scandal, it has nothing to do with the way compensation is structured. The compensation structure for their retail banking side mirrors other banks. Goals for opening accounts, cross-sell bonuses, all that stuff. The issue was how employees were treated. Upper managers had impossible goals on them (goals that could NOT be met through proper means) and pushed that down to branch managers and employees. There was no other plan to materialize this new expected business other than “or else”. Employees were routinely bullied into producing more and more; impromptu call nights and being made to come in on weekends, public shaming on conference calls and meetings (both management meetings and branch meetings), the threat of poor performance reviews that can hinder transfers away from bullying managers, the threat of termination for not meeting arbitrarily high daily quotas or forcing customers into unsuitable financial solutions, and the like. The worst was the termination of employees who reported their managers who ordered fake accounts opened. Of course, the managers were being bullied and threatened to. This was what Wells Fargo employees have had to live with daily for years, and they got to the point where they started to realize that this was the only way to avoid bring terminated anyway. It had nothing to do with the compensation structure and everything to do with how corporate routinely allowed bullying of their employees to go on systemically while they managed to tout their high cross-sell numbers.
Speaking of which, something else I have to get off my chest, opening multiple accounts for someone is NOT cross-sell.
Listening to all that, you’d think I hated WFC, wouldn’t you?
Sincerely,
ARB–Angry Retail Banker
ARB,
Well, the way employees (especially those who denounced the ongoing practices) were treated was really terrible. It’s part of a culture that’s changing now.
However, “it has nothing to do with the way the compensation is structured” is patently false. The compensation structure had incentives built in that were based around cross-selling/financial products per customer (“eight is great”), which is how the whole thing became an issue in the first place. You can call it cross-selling or whatever you want (WFC called it cross-selling), but employees felt pressure to meet these sales goals. Warren Buffett is on record stating that the compensation/incentive structure was “dumb”, and Wells Fargo launched a new pay plan earlier this year in response. As I said in my original comment, employees are of course going to find a way to maximize their pay within a given structure. It’s just really a shame that some employees crossed the line into illegal/immoral behavior. The incentive plan might have been dumb, and the culture might have been flawed, but employees always have a choice to go find another job. I certainly had opportunities to cross the line in the auto industry to meet my sales goals, but I never did. And I eventually moved on anyway. So to each their own on that.
But your comment about the compensation is false. It’s just that the culture was another part of the problem. You’re making it an either-or issue when it’s actually both. But had the compensation plan never been devised in its prior form, the culture to push that would have never developed, thus why the compensation structure was really at the heart of it (and why Buffett has repeatedly rebuked the incentive plan).
As for your last question, I don’t know if you hate WFC or not, but it seems like you hate your job. I personally wouldn’t still be in the banking industry if I were you, but that’s your choice. I’m not sure if I ever hated my job as much as you do, but I got out right about the time I started strongly feeling a negative attitude toward it (one I think you’ve had toward your industry for at least a couple years now).
Cheers!
Would have been a very nice pick up. Although the bad press isn’t good, people will forget about this within a month and move onto the next hot topic.
BHL,
Indeed, people have already pretty much moved on.
Cheers.
Thank you for Article. Every day learning new and valuable lessons by reading these articles.As total beginner in investing, articles are stepping stone for me. I also have few question and need guidance on that
As you mention you are using Dividend Discount Model for fair value calculation. Could you please share formula with this?
JIGAR,
Hey, I’m happy to share. If it weren’t for all the knowledge that was shared with me by others, I wouldn’t have been able to do what I did. We’re all better off as a species if we’re more free and happy, so it’s my pleasure. 🙂
As for the DDM analysis, there’s a plethora of resources online that explain what it is. And there are a number of free calculators that will do the work for you.
Here’s a quick explanation:
http://www.investopedia.com/terms/d/ddm.asp
Here’s a calculator:
http://www.moneychimp.com/articles/valuation/dcf.htm (substituting cash flow for dividends)
I use a spreadsheet for my articles, but that calculator will provide the same output (assuming the input is also the same).
Hope that helps!
Best regards.
Thanks for another great ‘Undervalued Dividend Growth Stock of the Week’ article!
I hope you keep doing these, even in retirement 🙂 To me that was always what I enjoyed (and enjoy) most about DGI blogs; the ability to see what others deem good dividend stocks and what analysis has led to that conclusion. Definitely keep learning a lot from that.
I bought 35 shares of WFC pre-scandal and decided to hold on. As noted before, this too shall pass…
Cheers!
Tall Investing
TI,
Absolutely. This too shall pass. I highly doubt we’ll be talking about it in a year. As it stands, I barely hear anything about it anymore.
Glad you enjoyed the article. I really enjoy doing these. Super happy and blessed to be able to still write them even while I focus a little more time on other pursuits.
Best wishes!