As anticipated by the markets, JPMorgan Chase & Co. (JPM - Free Report) announced a rise in its quarterly dividend, as part of its 2017 capital plan. The company declared a revised quarterly cash dividend of 56 cents per share, up 12% from the prior payout. The dividend will be paid on Oct 31 to shareholders on record as of Oct 6. Based on the Sep 19 closing price of $93.94 per share, the dividend yield is 2.38%.
Since 2011, JPMorgan has been raising its dividend annually. From paying 5 cents a share as quarterly dividend during the financial crisis, the company has come a long way in displaying its capital strength. Prior to this hike, the company had raised its dividend by 4.16% (from 48 cents to 50 cents per share) in March 2016.
JPMorgan’s 2017 capital plan also includes a $19.4-billion share repurchase authorization, through third-quarter 2018. Supported by a solid balance sheet position, the company continues to enhance its shareholders’ value through efficient capital deployment activities.
Wells Fargo & Company (WFC - Free Report) , Citigroup Inc. (C - Free Report) and Bank of America Corporation (BAC - Free Report) are among the other major banks that got approval from the Federal Reserve for their 2017 capital plans. These include share repurchase programs and dividend hikes.
Is Dividend Appeal Enough to Boost JPMorgan Stock?
Though the overall banking sector’s prospects appear promising, can this dividend hike help JPMorgan draw investors’ attention?
Stock is Undervalued: JPMorgan’s stock looks undervalued based on its price-to-earnings (P/E) and price-to-sales (P/S) ratios. The company currently has a P/E ratio of 13.42 and a trailing 12-month P/S of 2.94, which is below the industry average of 14.37 and 3.00, respectively.
Earnings per Share Growth: JPMorgan’s earnings are projected to increase nearly 10.3% in 2017 and more than 12.9% in 2018. Also, the company delivered an average positive earnings surprise of 14.6%, in the trailing four quarters.
Share Price Movement: JPMorgan’s shares gained 40.6% over the past 12 months compared with 34.3% growth recorded by the industry.
However, you must consider the following downsides before taking the plunge.
Leverage: JPMorgan’s debt/equity ratio of 1.39 compares with the industry average of 0.88, indicating a higher debt level relative to the industry.
Return on Equity (ROE): JPMorgan’s trailing 12-month ROE of 11.53% gradually deteriorated over last few years. Also, it compares unfavorably with ROE of 15.86% for the S&P 500, reflecting the fact that it is less efficient in using shareholders’ funds.
Revenue Growth: Though revenues witnessed a CAGR of 1.2%, over the last three years (2014-2016), projected sales growth of 6.13% does not compare favorably with the industry average of 6.22%.
Non-Interest Income: JPMorgan’s non-interest income has seen a precipitous decline at a CAGR (2013-2016) of 2.8%. Though it increased in the first six months of 2017, volatility in equity markets is expected to put pressure on fee income.
Just because JPMorgan has announced a dividend hike, we don’t think the stock is worth adding to your portfolio. Projected revenue growth and decline in non-interest income along with a high-debt level raise our apprehensions about the stock’s performance. Currently it carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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