Wachovia's move to nearly eliminate its dividend means a big change for its stock.
Although it's bound to be less attractive to investors looking for reliable and lucrative payouts, the moves the Charlotte bank announced Tuesday provided encouragement to some local investors and financial experts.
“I could see yield-conscious investors walking away or looking for something else,” said John Gugle, a certified financial planner with Alpha Financial Advisors in Charlotte. “But these are good moves if I'm an investor that's looking for confidence in the long term.”
Wachovia's stock soared 27 percent on Tuesday's news, which included layoffs and a shakeup of its mortgage unit.
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Along with a huge quarterly loss and layoffs, Wachovia announced it will cut its quarterly dividend to 5 cents a share from 37.5 cents, its second dividend cut this year. At the beginning of the year, the bank paid 64 cents a share.
Slashing the dividend will be a blow to retired stockholders for whom dividends are income, said Gugle, but are a sign of necessary change for long-term investors.
“I think what it signals to investors is wow they're really serious about this,” Gugle said. “But some yield-focused investors are definitely going to get hurt.”
Although financial planners said bank stocks are normally a safe bet for short-term yield, banks have been hit by a tough market.
According to SNL Financial, 109 banks have cut their dividend since January 2007, 28 of which made cuts since early June.
Bill Baynard, managing director for Charlotte-based Novare Capital Management, said stockholders now have to determine the likelihood of Wachovia's return to success.
“If I believe that Wachovia is going to turn the situation around I'm going to hold the stock,” Baynard said. “No company wants to cut their dividend, so this is about preserving capital and proving that they can do better in the future.”
Local shareholders said the dividend cuts mean Wachovia is doing what it needs to.
“Cutting the dividend is a very strong message that says they are deadly serious about returning the business to profit,” said Tom Burke, 59, a Wachovia stockholder. “Profit is where the success really is for investors.”
Burke, who works in financial services and lived in Charlotte for 28 years before recently moving to Mobile, Ala., said he plans on keeping his stock in Wachovia for the long term.
Matthews resident Jason Klingler said he has 350 shares of Wachovia stock, 200 of which he bought just two weeks ago.
“Just living here in Charlotte, I knew it was a good solid bank,” Klingler said.
Although pleased to see Wachovia's stock rising throughout the day, Klingler said he plans to hold on to his stock for two or three years.
John Boggs, a certified financial planner in Lake Wylie, S.C., warned the bank's stock is still volatile.
“You would need a pretty high risk tolerance to dive into Wachovia right now,” Boggs said. “I would think that most people should be very selective with their finances.”