J.P. MORGAN CHASE & CO. $108(New York symbol JPM; Conservative-Growth Payer Portfolio, Finance sector; Shares outstanding: 3.2 billion; Market cap: $345.6 billion; Dividend yield: 3.0%; Dividend Sustainability Rating: Above Average; www.jpmorganchase.com) is the largest banking firm in the U.S., with total assets of $2.7 trillion as of March 31, 2019.
The U.S. Federal Reserve requires big banks to pass an annual “stress test” before they can raise their dividends and buy back shares.
Expect another dividend increase later this year
Morgan easily passed that test in 2018, and raised its quarterly dividend by 42.9% with the October 2018 payment, to $0.80 a share from $0.56. The new annual rate of $3.20 yields 3.0%. The bank’s strong balance sheet should let it increase the dividend again this year.
Morgan’s revenue fell 1.6%, from $96.0 billion in 2014 to $94.4 billion in 2015. That’s primarily due to lower gains for its private equity business, along with lower revenue from consumer mortgages. However, revenue rebounded by 2.3% in 2016, to $96.6 billion. Revenue then rose 4.3% to $100.7 billion in 2017, and improved another 8.3% to $109.0 billion in 2018.
Overall earnings rose 13.7%, from $21.7 billion in 2014 to $24.7 billion in 2016. Earnings per share gained 17.0%, from $5.29 to $6.19, on fewer shares outstanding. Morgan’s earnings then slipped 1.2% to $24.4 billion in 2017, but earnings per share rose 1.9% to $6.31. In 2018, the new U.S. tax laws and higher interest rates helped push up its earnings to $32.5 billion, or $9.00 a share.
In the three months ended March 31, 2019, Morgan earned $9.18 billion, up 5.4% from $8.71 billion a year earlier. Per-share earnings rose 11.8%, to $2.65 from $2.37 on fewer shares outstanding. Revenue gained 4.4%, to $29.1 billion from $27.9 billion.
Despite higher interest rates, earnings from the bank’s consumer lending rose 19.2% on strong demand for new loans and credit cards. As well, earnings from Morgan’s commercial banking business improved 2.7%. Those gains offset weaker earnings from its corporate financing (down 18.2%) and wealth management (down 14.2%) businesses.
Morgan set aside $1.50 billion in the quarter to cover potentially bad loans. That’s up 28.3% from $1.17 billion a year earlier. The increase is mainly due to specific provisions for certain clients of the bank’s corporate financing division. The year-earlier provision also benefited as Morgan took back some of its previous loan reserves.
Physical branches still important
Despite more of its clients banking online, traditional bank branches still play a key role in attracting new clients and selling them more services.
Morgan now plans to open 400 new branches over the next few years, including 90 in 2019 (it ended 2018 with 5,036 branches). The new outlets will be in 20 growing markets where it wants to enhance its presence.
The bank still expects to complete its repurchase of $20.7 billion of its shares by June 30, 2019. It should announce a new target after it passes the 2019 stress test. Those buybacks will help increase its likely 2019 earnings to $10.05 a share. They also give shareholders are great stake in the company. The stock trades at just 10.7 times that estimate.
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