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On Tuesday, Wells Fargo & Company (WFC - Analyst Report) enhanced its quarterly common stock dividend by 20% to 30 cents per share. The dividend will be paid on Jun 1, 2013 to shareholders of record as of May 10, 2013.

This marks Wells Fargo’s 4th dividend increase since 2011, reflecting its commitment to return value to shareholders with strong cash generation capabilities. Prior to this, the company had increased its dividend by 14% (from 22 cents to 25 cents per share) in Jan 2013.

The dividend increase is part of Wells Fargo’s 2013 Capital Plan. The company’s capital plan, which included dividend hike and other capital actions, was submitted to the Federal Reserve in Jan 2013. Following the approval of the plan, the company increased its quarterly dividend.

For Wells Fargo, its business model is quite impressive as it allows the company to generate sufficient capital, strengthen 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 better expense management and improved credit quality, will support its profit figures. Yet, a sluggish economic recovery coupled with regulatory issues might limit its growth to some extent.

In first-quarter 2013 the company paid roughly $1.3 billion in dividends to the common shareholders. Moreover, it repurchased common stock worth about $383 million during the quarter. Cash and due from banks exiting the quarter were $16.2 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.

Other companies in the same sector worth considering include Fifth Third Bancorp (FITB - Analyst Report), JPMorgan Chase & Co. (JPM - Analyst Report) and State Street Corporation (STT - Analyst Report). All three companies carry a Zacks Rank #2 (Buy).

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