Warren Buffett's Biggest Dividend Stock Is on Sale

Wells Fargo (WFC) was founded in 1852 and offers a variety of banking, investment, insurance, mortgage, and consumer and commercial finance services. The company was the third-largest bank in the United States as measured by assets at the end of 2015.

The lowest Wells Fargo traded during the fourth quarter of 2015 was about $51 per share, which is higher than the stock's current price. In other words, Buffett was buying more of his biggest dividend stock at prices above where the stock trades today.

Unlike some of its peers, Wells Fargo has less exposure to investment banking and trading operations, which can be more volatile. The company instead focuses on basic lending businesses such as mortgages and car loans and also generates non-interest income from brokerage services, credit card fees, and more.

As one of the three biggest banks in the country, Wells Fargo enjoys numerous cost advantages that enable it to make more money from its loans than smaller players.

Let's take a closer look at Warren Buffett's biggest stock and why it could be an appealing dividend investment today.

According to Wells Fargo's annual reports the company's deposits have grown from $3.7 billion in 1966 to $1.2 trillion in 2015, representing annualized growth of approximately 12.6% per year. Wells Fargo has more retail deposits than any other bank in the country.

Importantly, Wells Fargo paid a minuscule interest rate of 0.08% on its deposits during the fourth quarter of 2015, and its total funding cost including all sources was just 0.25% in 2015.

Wells Fargo last received permission from the Federal Reserve in 2015 to increase its quarterly dividend by 7%, and management has boosted the dividend every year since 2010.

Buffett's recent purchases of the stock suggest that he thinks the company is attractively valued, and it's hard not to agree. The stock has a dividend yield of 3.1%. Assuming Wells Fargo can generate mid-single digit earnings growth, its stock appears to offer annual total return potential of 8%-to-10% per year.

For long-term investors looking to follow Buffett's lead, Wells Fargo is a high quality dividend stock to consider.

thestreet.com