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Wells Fargo is already running up against the Basel III capital cap.SHANNON STAPLETON/Reuters

Wells Fargo & Co.

Wednesday's close: $40.11 (U.S.), down 57 cents, or 1.4 per cent

52-week trading range: $29.80 to $41.10 a share

Annual dividend: $1.20 a share for a yield of 2.9 per cent

Analysts' ratings: There were 23 buys, 18 holds and 1 sell, according to Bloomberg data. Targets ranged from $37 a share from three analysts to $47 a share by Guggenheim Securities analyst Marty Mosby. The average Street target is $41.10 a share.

Recent history: Rising profits amid a housing recovery have helped shares of the fourth-largest U.S. bank and leading mortgage lender climb 30 per cent (including dividends) over the past year. It hit a record high of $41.10 on Wednesday. San Francisco-based Wells Fargo was among the financial institutions bailed out by the U.S. government's Troubled Asset Relief Program (TARP) following the financial crisis, but it managed to repay that money in 2009. After the bank passed the latest round of stress tests this spring to see whether it could survive a severe recession, the U.S. Federal Reserve Board approved a dividend hike at Wells Fargo to 30 cents a share for the second quarter and more stock buybacks this year versus more than $4-billion in 2012. Warren Buffett's Berkshire Hathaway Inc., which is the largest shareholder in Wells Fargo with more than an 8-per-cent stake, bought additional shares in the first quarter, according to regulatory filings. The bank reports second-quarter results in July. Because Wells Fargo has a smaller investment banking business than its peers to balance its traditional banking businesses, its mortgage-banking results are watched closely by the Street.

Manager insight: Wells Fargo is a compelling U.S. bank play for investors because it has a tailwind from a housing rebound and the potential for rising dividends, says David Burrows, president of Toronto-based Barometer Capital Management.

With 41 per cent of its revenue from the mortgage business, "it's a great proxy on a slow, steady housing recovery," he added. "We expect dividend increases to continue. There could be another one this year, if not, next year."

Mr. Burrows has been buying shares of Wells Fargo and other U.S. banks in recent weeks for his portfolios, and moving away from Canadian banks. Canadian banks are facing headwinds for loan growth from a weakening domestic housing market and softening resource sector, so "we have almost no Canadian bank exposure," he said.

Consumer and industrial loans at the top 25 U.S. banks grew 12 per cent in the first quarter from a year earlier, he noted. "U.S. banks have repaired their balance sheets, and loan growth is returning, yet the Federal Reserve has held back dividend increases."

These banks, including Wells Fargo, are "paying out less than 27 per cent of their earnings versus their historical average of over 40 per cent," he said. "We believe that both earnings and dividend growth [at U. S. banks] will be substantially in excess of the Canadian banks over the next three years, while valuations are much lower."

Wells Fargo trades at 1.4 times book value compared with 1.1 times for the top U.S. banks, and 1.8 times for Canadian banks, he said. Based on expectations that the Canadian dollar will decline further, that would boost the "profitability of the trade," Mr. Burrows said.

Risks to the stock include an unsustainable U.S. housing recovery and slower loan growth if the economy sputters, he said. "But we don't expect a significant acceleration in the economy. We just think it will be slow, steady improvement. We expect low, single-digit growth of 2 to 3 per cent over the next 12 months."