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By Josh Peters, CFA | 12-15-2009 03:02 PM

Wells Has Great Dividend Potential

Josh Peters thinks Wells Fargo will use its earnings power to greatly expand its dividend now that it has paid back its TARP funds.

Jeremy Glaser: I'm Jeremy Glaser with Morningstar.com. With news this week that Citigroup and Wells Fargo will be repaying their TARP money to the federal government, questions about if they're going to be able to raise their dividend have been on their investors' minds.

Here to discuss this with me is Morningstar DividendInvestor editor, Josh Peters. Josh, thanks so much for joining me today.

Josh Peters: Happy to be here.

Glaser: So do you think there is a chance that either Citi or Wells Fargo are going to start aggressively raising their dividend, now that they're out of the government's thumb?

Peters: Well, this definitely helps, but I think that the first thing that we can do is just dispense with Citigroup. It's hard to even know what the business mix of that bank is going to look like, a couple of years from now.

They have so many big large businesses, inside of that organization, that they'd like to get rid of, that I don't think that that's one you can really own in anticipation of a dividend. Someday maybe, but that's a long way away.

Wells Fargo, on the other hand, is one of the best-run banks in the country. It's done a lot to leverage the crisis to its advantage. So there was a provision in the TARP program that made it difficult, among other things, for a bank that was participating, to raise its dividend. Having repaid these funds, that particular restriction is now lifted.

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