Dividend Cut Burdens Big Bank Stock

The shares of Wells Fargo & Co (NYSE:WFC) are down 0.5% at $25.57 at last check, after announcing it will cut its dividend in response to the Federal Reserve's new restrictions on dividend payouts to shareholders. The first big U.S. bank to do so, the company will cut its dividend from the 51 cents it paid in the four most recent quarters and will announce its payout in its second-quarter report July 14. CEO Charlie Scharf stated that "there remains great uncertainty in the path of economic recovery," and though its difficult to make accurate predictions, they have "significantly changed since last quarter." In response to the news, RBC trimmed its price target to $29 from $35 last night.

Recently turned away by its 100-day moving average, WFC is drifting just above its May 13 low of $22. Year-to-date, the equity is down 52.5%, however, the beginning of this week has the stock eyeing its first weekly win in the last four. 

It's no surprise then that only four out of the 22 analysts in coverage sport a "strong buy," while the other 18 are at a "hold," or "strong sell." However, the 12-month consensus price target of $31.19 is a 22.2% premium to current levels, suggesting more price-target cuts could come through and weigh on the security. 

In the options pits, WFC's stock's 50-day call/put volume ratio of 2.47 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits higher than 90% of readings from the past year. In other words, long calls are much more popular than usual. Echoing this, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.49 sits in the low 4th percentile of annual readings. This suggests short-term option players have rarely been more call-biased this year. 

Today is more of the same, with 60,000 calls and 28,000 puts across the tape so far. Most popular is the October 27.5 call, while new positions are being opened at the weekly 7/10 26-strike call.