Finally, some positive news from the banking sector! Wells Fargo (WFC), the nation’s fifth-largest bank, announced it earned $0.53 per share in 2Q. Now, that’s a 23% decline from a year ago, but the results topped analyst estimates of $0.49 a share.

Wells Fargo also announced it was raising its dividend by 10% at a time when many of its peers in the financial sector may have to reduce theirs in order to preserve precious capital.

The dividend increase raised eyebrows. The stock was already yielding 6 percent at the start of yesterday’s trading. Raising the dividend was a canon shot over the bow at short sellers and fear mongers.

WFC shares have been battered of late, along with the rest of the financial sector and the combination of an earnings forecast beat, a dividend increase, and the crackdown by the SEC on the practice of naked shorting, gave the shares the impetus for Thursday’s 33% gain (see also, “3 Reasons Why Investors Should Be Optimistic.“)

Wells Fargo: Not Headed for the Poorhouse

For the long term, I am extremely bullish on the banking sector and WFC.

This last quarter marked the third straight quarter in which the company has seen profit decline and, as the nation’s second-largest mortgage lender, more loan-loss provisions are still on the horizon. But remember, the time to buy is when things look their worst.

Wells Fargo also said charge-offs for credit cards and small business loans increased.

The huge gains yesterday, may give the sense that one has missed the boat, but the move barely eliminated the big losses over the last year. There is still room to go higher here and I think it will.

With its sound balance sheet, a steep yield curve will provide a healthy earnings environment for banks that make responsible loans to creditworthy borrowers.

Of course, the short-term market promises to be choppy, but I think investors can maximize returns over a 1- to 3-year period by owning banks like Wells Fargo.

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