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On Tuesday, Wells Fargo & Company (WFC - Analyst Report) enhanced its quarterly common stock dividend by 14% to 25 cents per share. The dividend will be paid on Mar 1, 2013 to shareholders of record as of Feb 1, 2013.

This marks Wells Fargo’s 3rd consecutive year of dividend increase, reflecting its commitment to return value to shareholders with strong cash generation capabilities. Prior to this, the company had increased its dividend by 83% (from 12 cents to 22 cents per share) in Mar 2012.

The dividend increase is part of Wells Fargo’s 2012 Capital Plan. The company’s capital plan, including dividend increase and other capital actions, was submitted to the Federal Reserve in Jan 2012. Since the Fed gave its capital plan a green signal, the company increased its quarterly dividend.

Moreover, Wells Fargo has submitted its 2013 Capital Plan earlier this month to the Fed, and it is under review. This plan also seeks permission for an increase in capital distributions. The company’s decision to hike dividend depicts its strong capital position and increases the possibilities of clearing the recent stress test.

For Wells Fargo, its business model is an impressive one that allows it to generate sufficient capital, grow its balance sheet and help return capital to shareholders. Moreover, we believe that strategic acquisitions will expand the company’s business and improve its profitability over time.

The company’s diversified revenue stream, strong capital position and expanded business through acquisitions, along with expected expense management as well as improved credit quality, will also support its profit figures. Yet, a sluggish economic recovery coupled with regulatory issues might limit its growth to some extent.

In 2012, the company paid roughly $4.7 billion in dividends to the common shareholders. Moreover, it repurchased common stock worth about $3.9 billion during the year. Cash and due from banks exiting the year were $21.9 billion.

Wells Fargo currently carries a Zacks Rank #3 (Hold). We believe that the announcement of a dividend increase will augur well for the company and help boost shareholders’ confidence, which might lead to positive estimate revisions. This, in turn, could cause an upgrade in the Zacks Rank.

Among other companies in the same sector, BB&T Corporation (BBT - Analyst Report), Comerica Incorporated (CMA - Analyst Report) and BlackRock, Inc. (BLK - Analyst Report) also increased capital redeploying efforts through dividend increases recently.

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