Quick question: Can you spare $3.4 billion in cash every few months to reward members of a select group of investors?
If the answer is no, you are certainly not JPMorgan Chase(NYSE: JPM). The giant bank is paying nearly that amount quarterly in the form of common stock dividends to its shareholders.
To put it mildly, $3.4 billion is an awful lot of scratch, even for a big lender atop the U.S. financial system. Here's how JPMorgan Chase manages to generate that much cash to return to its investors.
The durable dividend
Fun fact: Despite its size and prominence, JPMorgan actually hands out the lowest-yielding dividend among the four biggest U.S. banks -- a squad that includes Bank of America, Citigroup, and Wells Fargo. The company's 2.9% yield is almost, but not quite, neck-and-neck with No. 3 in yield terms, Wells Fargo. Bank of America currently pays out at a shade over 3%, while Citi is the clear winner at 4.3%.
In terms of dollar amounts, JPMorgan distributes $1 per share each quarter these days. It even had enough cash on its books to distribute a shareholder payout -- following a big cut in 2009 -- during the financial crisis of the late 2000s.
Ably steered by star Chief Executive Officer Jamie Dimon, JPMorgan is renowned for its fortress balance sheet. This essentially means that its books are heavy on liquidity, all the best to be prepared for a rainy day (like the financial crisis). Banks are cyclical businesses, after all, and the bottom of the cycle can be very lean.
Times are good now for the more effective lenders on the scene; the recent series of interest rate rises is putting more money in banks' coffers.
Compounding that for JPMorgan, the meltdowns of several smaller lenders made its position even stronger. The company bought the failing First Republic Bank and benefited from a flight to quality as bank customers shifted their deposits to larger banks considered to be safer repositories for their money.
JPMorgan's success is reflected in its recent performance. Total net revenue rose by 25% year over year (to more than $38 billion) in the bank's first quarter, a massive number. Net profit zoomed even higher, leaping by 52% to $12.6 billion.
A big vault in the fortress
There's plenty of wherewithal in that fortress's treasury. JPMorgan's free cash flow more than doubled in 2022, coming in at a shade less than $100 billion. From this, it paid out almost $13.6 billion in common stock dividends. To say there's room for another raise is very much understating the case.
The bank may well lift its payout again, although it hasn't done so since mid-2021. Good results and a favorable economic cycle only go so far; as a dividend-paying company, investors expect to be kept happy with regular raises if their companies have the means to pay them.
Federal Reserve Chairman Jerome Powell has signaled that there are more interest rate rises on the horizon, even though the Fed opted most recently to keep them unchanged.
At some point, we'll surely witness the end of the explosive growth JPMorgan enjoyed in its first quarter. Collectively, analysts are modeling a 21% rise in annual per-share earnings for this year, but a 4% decline for 2024. The dynamic is the same on the top line, where those prognosticators are modeling a 15% bump in 2023, followed by a 2% drop in the following year.
Considering how far and how fast JPMorgan has come, though, that's hardly worrying. The bank is a very powerful player in the U.S. financial system, and it will surely remain a leader. And sooner or later that dividend will be lifted -- the company can easily afford it, after all.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and JPMorgan Chase. The Motley Fool has a disclosure policy.
