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In reviewing , these estimated earnings numbers appear more than reasonable.
If Wells Fargo were to keep its current dividend payout ratio, the estimated earnings materialize as forecast and Wells Fargo trades at 15 times earnings, this would equate to a 12.4% yearly return for the next 5 years.
Now, it is paramount to underscore the idea that this is simply a calculator. Graphs’ subscriber has the ability to change these forecasts to fit their own expectations or scenario analysis.
Specifically, it relies on analysts’ consensus estimates and a default P/E ratio. in its annual report; perhaps you could even imagine a couple more.
So this, missing out on 10% annualized returns, is the benefit of being “right” about the temporary share price collapse of Wells Fargo.
True, Wells Fargo’s share price and earnings dropped by more than 70% in a year.
Yet we would like to express caution on this front.
What seems like a disaster could simply be a folly of short-term judgment.
What would you do if we told you that a financial crisis was coming?In observing the yearly dividends, it’s clear that a dramatic cut took place.Yet the patient investor still would have seen their dividend grow by over 8% per annum in total.Specifically, let’s drill down to a single bank stock and say that we knew for certain that Wells Fargo’s (WFC) share price would drop by more than 70%.Moreover, this price decline wasn’t necessarily going to be capricious in nature as Wells Fargo’s earnings would also drop by roughly 75% for the year.
If, for instance, the same earnings estimates materialize but Wells Fargo shares are trading at the same P/E as today, this would only indicate an annual expected return of roughly 8%. You might believe that another financial crisis is round the bend or perchance the share price could drop 30%, 40% or even 70% next week, next year or next decade – at the very least in your lifetime.