Standard Bank Accounts compared to Individual Stock Ownership!

Have you checked with your bank lately and asked what is the going rate for depositing your cash in an interest bearing account? I have, on a money market I was quoted 0.05% with a minimum balance of $3500, and on a regular savings account I was quoted 0.05% as well. Take that same initial $3500 and times it by 0.05 and you get $175 worth of interest, add that to your initial deposit, and you have a total of $3675 annually. Not Bad...Save comfortable, and low management knowledge... correct?

Let's say for instance you wanted to invest in an individual stock for the purposes of matching, if not surpassing your yield of 0.05 from the bank. Remember when investing in stocks solely for dividend yields one must be extremely sure that the company will pay those dividends to its shareholders. Looking for the well established names/household names, because you know these companies are here for the long run. Using the same scenario as above, If I were to take that same amount of money and purchase shares of stock from say Wells Fargo offering a Dividend Yield 1.36 or 4.8% annually. The closing price today for a share of wells fargo stock is $25.96, divide the $3500 you have to spend by the share price, and you will recieve 134.82 shares of stock. Wells Fargo's dividend per share is $1.36 times that by the number of shares you have (134.82)= $183.36, add that to your initial deposit, and you have a total of $3683.36 based on the stock staying at this exact price for a year. A whooping $8 more annually which includes more risk, and time for maintenance.

Share prices fluctuate on a daily basis and giving the recent economic turmoil for the coming year, and the diminished ability for banks to secure cash, keep current assets from rapidly losing value, and their diminshed ability to lend money to distressed companies in need, I would say Wells Fargo will be declining in price. Taking a look at historical trends in the stock

June 7, 2008 $23.75 a share

Sept 15, 2008 $39.80 a share

Nov 17, 2008 $21.76 a share

January 6, 2009 $25.96 a share

The last time Wells Fargo was below $20 a share was May 1999. Ten years ago...

I would buy wells fargo on a range of $19-$21 a share and hold it purely for the dividend, keep in mind the dividend yield will rise in the event a stock goes down in price. Here is an example, taking that same $3500 investment, and dividing it by $21 gives you 166.67 shares. Just to be on the safe, hypothetical side using the current dividend yield of 1.36 x 166.67 shares you arrive at $226.67, add that to your initial investment and you have grossed $3726.67. That is $51.76 more annually than a standard bank account, but there is potential for an upswing, and more money in your pocket if the stock price goes up.


My advice is if you have $3500 in cash and are wondering what to do with it, I would say stay on the sidelines for now, and if Wells Fargo goes to $15-$20 a share after it releases earnings January 28, 2009 I would buy in and let that spectacular dividend pay you a hefty return on your money.