JPMorgan (JPM) Hikes Dividend: Is the Stock Worth a Look?
JPMorgan JPM has increased its regular quarterly dividend. The bank announced a dividend of $1 per share, representing a hike of 11.1% from the prior payout. The dividend will be paid out on Oct 31 to shareholders of record as of Oct 6.
Based on last day’s closing price, the dividend yield currently stands at 2.6%.
JPMorgan has a track record of increasing its dividends since 2011. From paying 5 cents a share as the quarterly dividend during the financial crisis, the company has come a long way in terms of capital strength.
Last year, amid the coronavirus-induced economic slowdown, the Federal Reserve restricted dividends and share repurchases by JPMorgan along with other major banks to conserve liquidity. However, with the removal of restrictions, the Wall Street giant is expected to be able to continue to enhance shareholder value in the future through efficient capital deployments, given its earnings and capital strength.
So far this year, shares of JPMorgan have gained 20.4% compared with 23.8% growth recorded by the industry.
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Investors, who are interested in this Zacks Rank #3 (Hold) stock, should first take a look at its fundamentals and growth opportunities mentioned below before making any investment decision.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Strength: Over the past three-five years, JPMorgan witnessed earnings growth of 13.6% compared with the industry average of 8.8%. In 2021, the company’s earnings are projected to grow 58.2%.
Its long-term (three-five years) estimated earnings growth rate of 5% promises rewards for investors in the long run.
Further, JPMorgan has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 33.3%.
Superior Return on Equity (ROE): JPMorgan’s ROE is 19.26% compared with the industry average of 12.10%. This indicates that the company reinvests cash more efficiently compared with its peers.
Impressive Expansion Strategy: JPMorgan has been expanding its footprint in new regions by opening branches. In 2018, it announced plans of entering 25 markets by opening 400 new branches by 2022-end. On this front, the bank has already added more than 220 new branches and has a presence in 48 of 50 U.S. states.
Moreover, supported by a solid balance sheet position, the company has been growing through strategic acquisitions. Of late, it has been on an expansion spree and has announced several deals that are expected to help grow fee income and support the bank's plan to diversify revenues. In the current year, JPMorgan’s top line is expected to grow 2.4%.
Elevated Expenses: The company’s operating expenses have witnessed a compound annual growth rate of 4.3% over the five-year period ended 2020. The upward trend continued in the first two quarters of 2021. As JPMorgan continues with strategic on-bolt acquisitions and invests to upgrade technology, expenses are likely to remain elevated.
Margin Pressure: Over the past several quarters, JPMorgan’s net interest income growth has been hampered and its net yield on interest-earning assets has contracted because of the low interest rate environment. Notably, after slashing rates thrice in 2019, the Fed cut the interest rates to near zero in March 2020, with an aim to support the U.S. economy from the coronavirus-induced mayhem. Since the central bank has signaled no major change in the interest rate scenario anytime soon, JPMorgan’s margins are expected to remain under pressure.
Competitive Landscape
Many finance companies have raised their dividend over the past few months.
A few days ago, Fifth Third Bancorp FITB raised its quarterly cash dividend by 11%. The company will now pay out a dividend of 30 cents per share. The dividend will be paid out on Oct 15 to its shareholders of record as of Sep 30.
While Spirit of Texas Bancshares, Inc. STXB announced a 33.3% hike in its dividend to 12 cents per share, Virtus Investment Partners, Inc. VRTS increased its regular quarterly cash dividend by 83%.
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