Finally, JPMorgan Chase & Co. (JPM) increased its quarterly cash dividend to 25 cents per share. This dividend is payable on April 30, 2011 to the shareholders of record at the close of business on April 6, 2011. Hence, the annual dividend payable to the shareholders comes to $1 per share. This dividend announcement is a five-fold rise from the prior annual dividend of 20 cents per share.
As a result of the financial crisis, JPMorgan had to slash its quarterly dividend to its present level and had taken bailout money from the government to stabilize its financials. The company last increased its quarterly dividend in the third quarter of 2007 by 12% to 38 cents per share, which continued till the first quarter of 2009. Thereafter, the company had to reduce the dividend to 5 cents per share. So, the hike in annual dividend for JPMorgan is a sort of recovery as prior to the recession, the company used to pay $1.52 per share.
As the company repaid the bailout money, JPMorgan wanted to hike its dividends. Further, there has been a significant turnaround in the company’s financial conditions from what it had been during the financial crisis, strengthening its case for the dividend rise.
So, in January JPMorgan along with other 18 banks including Bank of America Corp. (BAC), Wells Fargo & Company (WFC) and Goldman Sachs Group Inc. (GS) had submitted their capital plans to the Federal Reserve for second round of stress tests to secure approval for dividend increases and share buybacks.
On Friday, the results of the stress tests were announced. The Fed allowed JPMorgan to increase dividend and also repurchase shares. Additionally, the company also announced $15 billion multi-year stock repurchase program. Out of this, up to $8 billion of common stock buyback is approved for 2011. This share buyback program replaces the prior $10 billion program that had nearly $3.2 billion authorization still remaining.
JPMorgan has significant organic growth opportunities. The confluence of strong client inflows, improved equity-centric activities, growth in credit cards and investment products along with steady international expansion will usher in meaningful revenue opportunities in future.
We anticipate continued synergies from a reduction in reserves for future losses, business diversification and a strong capital position, but sluggish lending activity and customer trading, pressure on NIM as well as the impact of legal and regulatory challenges will drag down future earnings. However, JPMorgan’s decision to restore dividend and authorize new share repurchase program will enhance the investors’ confidence on the stock.
Currently, JPMorgan currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we are maintaining a long-term Neutral recommendation on the stock.
BANK OF AMER CP (BAC): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
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