Wells Fargo's Preferred Stock Series CC Shares Cross 6% Yield Mark

Wells Fargo's 4.375% non-cumulative preferred stock (WFC.PRC) traded Thursday yielding approximately 6.01%, which is below the 6.52% average for financial preferreds, yet it exhibited a significant 26.64% discount to its liquidation preference, substantially wider than the 8.60% category average. This deep discount, coupled with its non-cumulative nature, suggests market pricing reflects heightened risk perception, with shares down 0.5% on the day.

Analysis

Wells Fargo's 4.375% non-cumulative preferred stock (WFC.PRC) is trading at a significant 26.64% discount to its liquidation preference amount, a level substantially wider than the 8.60% average discount for preferreds in the financial sector. Despite this deep discount, its yield, which is just above 6% based on an annualized dividend of $1.0938, remains below the 6.52% average for its peer group. This combination of a below-average yield and an above-average discount suggests the market is pricing in a heightened level of risk specific to this security. The risk is compounded by the stock's non-cumulative nature, meaning any missed dividend payments are permanently forfeited by shareholders. The daily trading activity, with WFC.PRC down approximately 0.5% and the common stock (WFC) down 0.4%, reflects a mild negative sentiment surrounding the issuer on the day.

Key Decisions for Investors

• Investors should weigh the potential for capital appreciation from the substantial 26.64% discount to liquidation value against the security's below-average yield and significant downside risk.
• The non-cumulative feature is a critical risk factor, meaning any potential stress on Wells Fargo's ability to pay dividends could lead to permanent loss of income for WFC.PRC holders, justifying a cautious stance.
• Given the yield is below the financial sector average, income-focused investors may find more attractive risk-adjusted returns in other preferred stocks that do not exhibit such a wide discount to par.