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Is JPMorgan Stock Worth Holding on to Post Dividend Hike?

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JPMorgan (JPM - Free Report) has increased its regular quarterly dividend. The company announced a dividend of 90 cents per share, representing 12.5% hike from the prior payout. The dividend will be paid out on Oct 31 to shareholders on record as of Oct 4.

Based on this, JPMorgan’s dividend yield is 3%, considering last day’s closing price of $118.57. This is part of the company’s 2019 capital plan, which was approved by the Federal Reserve in June. Also, the bank’s capital plan includes authorization to repurchase $29.4 billion worth of shares, through the second quarter of 2020.

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 terms of capital strength. Prior to this hike, it had raised its dividend by 42.9% to 80 cents per share in September 2018.

Notably, JPMorgan’s shares have gained 21.5% in the past year, outperforming the industry’s growth of 18.9%.

Other than JPMorgan, several other major banks, including U.S. Bancorp (USB - Free Report) , Bank of America (BAC - Free Report) and PNC Financial (PNC - Free Report) , have increased their quarterly dividends (as part of their 2019 capital plan) in the range of 14-21%.

Investors interested in this Zacks Rank #3 (Hold) stock can have a look at the bank’s fundamentals and growth opportunities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock looks attractive based on the regular rise in dividend income and solid price performance amid challenging operating backdrop and the Fed’s accommodative monetary policy stance. But let’s check out JPMorgan’s fundamentals and financial performance before taking any investment decision.

Here are some of the factors that one must consider:

Earnings growth: Over the past three to five years, JPMorgan witnessed earnings per share growth of 14.1%. Further, the company’s earnings are projected to grow 9.8% and 6.1% in 2019 and 2020, respectively.

Moreover, JPMorgan has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 3.1%.

The company’s long-term (three-five years) estimated earnings growth rate of 7% promises rewards for investors in the long run.

Expansion strategy: JPMorgan plans to open roughly 400 new branches in 15-20 new markets by the end of 2022. The bank has already made progress on this front, with announcements to open branches in several new regions.Apart from enhancing market share, the strategy will help the bank grab opportunities to increase presence in the card and auto loan sectors.

Also, the company’s acquisition of InstaMed will enable it to expand into lucrative U.S. healthcare payments market. All these efforts and decent loan growth are expected to support revenues. The company’s sales growth is projected to be 4.1% for 2019 and 1.5% for 2020.

Superior Return on Equity (ROE): JPMorgan’s ROE ratio is 14.40% compared with the industry average of 12.18%. This indicates that the company reinvests more efficiently compared to the industry.

Dismal mortgage banking and capital markets performance: Performance of JPMorgan’s mortgage banking operation has been disappointing. Also, the bank is facing difficulties in expanding mortgage business, given the increase in competition and fall in home-buying appetite. Further, JPMorgan’s capital markets revenue growth is getting hampered by fears of global economic slowdown, trade war and several other geopolitical matters. Thus, fee income growth remains a challenge for the bank in the near term.

Our Take

Investing in the United States’ largest bank for long term gains is advisable, as JPMorgan is undertaking several initiatives to counter tough operating backdrop and lower interest rates. However, one should keep eyes on fee income growth concerns.

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