Although JP Morgan Stock is not a member of the S&P 500 Dividend Aristocrats Index, it is one of the best managed banks in the world with a 12% return on equity over the last 5 years and 15% over trailing 12 months.
JP Morgan Stock has also significantly outperformed the S&P 500 index gaining 164% over the last 5 years, while the S&P is up 61% during this period.
Having said that, we will try to answer the important question on investors’ minds. Is this a good time to buy JP Morgan Stock given its huge run up of 42% in 2019?
This article will also analyze JP Morgan’s business operations and latest financial results as of 4th Quarter, 2019, dividend growth history, stock’s valuation and long term performance.
Table of Contents
This article is broken down in to sections, feel free to jump to the area that interests you.
- Overview of Business Operations
- Revenue Analysis and Share Buybacks
- Growth Outlook for JP Morgan Stock
- Dividend Growth History
- Measuring the Dividend Payout Ratio of JP Morgan
- Stock’s Valuation to S&P 500 Financials and Performance
- Executive Summary
- JP Morgan Stock Dividend Dates
- JPM Current Stock Price
JP Morgan is a leading global financial services organization with $2.74 trillion in customer assets and leading market positions in investment banking, consumer and commercial lending, financial transactions processing and asset management.
In fact, by 2020, management expects 93% of the entire population in America to be in Chase’s footprint and within a retail branch.
Currently, the company has 5130 retail branches across the United States in traditional retail banking. It is also adding 400 new branches in new markets including Boston, Washington DC, Philadelphia, Charlotte, Minneapolis, etc.
Management is focused on innovation and customers can now open an online bank account digitally in 3 to 5 minutes. This has helped the company add 1.5 million new accounts since February 2018.
Its investment banking division is rated as the #1 global investment banking firm capturing 8.7% of global market share with room for growth.
In its 2018 annual report, the company gives a summary of its growth from 2006 to 2018 and displays its leading market positions. It fulfills banking needs of 62 million US households and has 99 million debit and credit card customers.
Chase brand is also the #1 credit card issuer in the United States.
Over the last decade, JP Morgan has almost doubled its client assets from $1.415 trillion in 2008 to $2.740 trillion in 2018.
Revenue Analysis and Share Buybacks
For full year 2019, JP Morgan generated $118.7 billion in revenue and earned $36.4 billion in net income; implying a 30.6% net profit margin. Revenue grew at a healthy pace of 6.5% over 2018’s $111.5 billion.
Trading on the New York Stock Exchange, JP Morgan Stock has a 433 billion $ market capitalization and pays a 2.6% dividend yield. This yield is quite attractive when compared with the yield on the S&P 500 which is 1.8% or the yield on S&P Financials ETF (XLF) of 1.5%.
Over the last decade, JPM has grown its revenues from $86.05 billion in 2010 to $118.7 billion as of 2019. This represents a compounded annual growth rate (CAGR) of 3.3% which is very healthy for a company as large as this one.
As a comparison, Bank of America (BAC) has grown its revenues from 2010’s total of $81.78 billion to 2019’s total of $87.65 billion, representing a 0.7% CAGR.
As per screenshot below, the 2 main sources of revenue are net interest income, generating $57.8 billion for 2019 and non-interest revenue which brought in $60.9 billion.
Net interest income is the spread between what JP Morgan earns on its loans to customers, versus what it pays for deposits. Different types of products such as auto loans, credit card debt, mortgages and lines of credit all have different interest rates.
However, most people know the “savings” rates that banks pay on your deposit is low, between 1% to 2% at best.
Non-Interest Revenue on the other hand is what the bank earns in its asset management and mutual funds division, commercial banking, treasury and custodianship services.
JP Morgan Stock has outperformed all other bank stocks as well as the S&P 500 due to improving metrics like return on equity (ROE), return on tangible common equity (ROTCE) as well as overhead ratio. Let’s explore these ratios in detail.
For fiscal year 2019, JP Morgan achieved a 15% Return on Equity (ROE) versus 13% in 2018. Return on Equity is a financial performance measure that divides net income in to shareholder’s equity to determine how well the company is being operated. The higher this number, the better the shareholder returns.
Wall Street likes to further break down ROE in to ROTCE which is Return on Tangible Common Equity. This is all shareholders’ equity minus intangible assets and goodwill, since they cannot be touched or have no physical value. Plus, many times Goodwill can be over valued and increases the size of the balance sheet erroneously.
JP Morgan’s ROTCE came in at 19% for 2019 which is very impressive. This strength can be attributed to the Tax Cuts and Jobs Act of 2017 initiated by President Donald Trump and his administration.
In fact, during the 2018 annual investors conference, JP Morgan CEO Jamie Dimon informed investors that the record $32.5 billion in profits for the year would not have been possible without the tax cuts.
In its 4th Quarter, 2019 earnings results, JP Morgan reported $29.21 billion in revenues and $8.52 billion in net income, implying a healthy 29.2% net profit margin. CEO Jamie Dimon quotes, “JPMorgan Chase produced strong results in the fourth quarter of 2019, capping off a solid year for the Firm where we achieved many records, including record revenue and net income.”
He adds, “The U.S. consumer continues to be in a strong position and we see the benefits of this across our consumer businesses. In Consumer & Community Banking, average deposits grew at 5%, somewhat aided by lower short-term rates, and we continued to add customers in new and existing markets, and deepen our customer relationships by offering great deposit, investment and lending products. The robust holiday season was reflected in our card sales volumes and loan balances, up 10% and 8%, respectively.”
Attached is a chart showing JP Morgan’s historical earnings per share growth from 2004 to 2018.
The bank has grown its diluted earnings per share from $1.52 per share in 2004 to $9 per share in 2018, which represents a healthy compounded annual growth rate (CAGR) of 12.6% over 15 years.
What’s also impressive is the bank’s ability to earn a 17% Return on Tangible Common Equity (ROTCE) which is also liked by the world renowned investor Warren Buffett.
In November 2018, Warren Buffett’s Berkshire Hathaway added a new $4 billion stake in JP Morgan Stock because he liked the company’s 17% ROTCE.
This proved to be a great move as JP Morgan Stock advanced 42% in 2019 and vastly out performed the S&P 500 which gained almost 28% and Financials ETF XLF that gained 30%.
Dividend Growth History
JP Morgan paid its first dividend in 1999 at $1.06 per share. During the great financial crisis of 2008 to 2010, the company lowered its dividend from a high of $1.52 per share in 2008 to $0.2 in 2010.
Over the last 10 years, JP Morgan has raised its dividends from $0.8 per share in 2011 to $3.3 in 2019, which represents a compounded annual growth rate (CAGR) of 17%. This is truly an impressive growth rate and investors have rewarded the stock generously.
A history of JP Morgan Stock dividends can be accessed via the Investor Relations website and clicking on “Stock Information.”
Over the last 5 years, JP Morgan has achieved a stunning 16.6% dividend growth rate. During the great financial crisis of 2008, JP Morgan received a $25 billion cash injection from the US Government under the Troubled Asset Relief Program (TARP). In order to pay back this amount faster, management decided to lower its dividend in 2010 by a whopping 87%.
Dividend Payout Ratio
Lets calculate the the dividend payout ratio for JP Morgan Stock. Dividend Payout Ratio measures how much of a company’s free cash flow is paid out in the form of dividends.
In the case of JP Morgan, the easiest way to calculate the payout ratio is dividing dividends per share in 2019 by earnings per share for the year.
In its 2019 earnings results, the company states cash dividends paid equaled $3.3 per share. Net income as measured by Reported Earnings per Share (EPS) came in at $10.72.
Dividend Payout Ratio = Cash Dividends per Share / Earnings per Share (EPS)
Dividend Payout Ratio = $3.3 / $10.72
DPR = 31%
A dividend payout ratio of 31% is financially very strong as it leaves lots of room for future dividend raises, more cash for share repurchases as well as adding new staff and acquiring other smaller banks, credit card companies or mutual funds.
Valuation and Long Term Performance
JP Morgan Stock has grown from $6 in January 1980 to $137.5 as of February 2020. This represents a compounded annual growth rate (CAGR) of 8% over a 40 year period, which is quite a strong performance.
Analysts expect JP Morgan to earn $10.83 Earnings per Share in 2020. Using today’s closing price of $137.5, the stock is trading at a Forward Price to Earnings (PE) ratio of 12.7 times, which is much cheaper than the broader market.
As a matter of fact, the S&P 500 is currently trading at 19 times forward (2020) earnings, which makes JPM Stock look very cheap.
Financial institutions such as banks are also valued on a price to book basis. Price to Book Ratio is calculated by dividing a company’s stock price by its book value per share which essentially is total assets minus total liabilities.
In valuing JP Morgan, we determine that it currently trades at 1.8 times price to book. Historically, JP Morgan Stock has never been more expensive than now during the last decade.
Attached chart shows JP Morgan Stock’s Price to Book on a historical basis courtesy of FinBox.com. During the European debt crisis of August 2011, JP Morgan Stock traded as low as 0.7 times price to book.
Here is what we like and don’t like about JP Morgan Stock.
- Strong 5 year annualized dividend growth rate of 16.6%.
- Reasonable dividend yield of 2.6% which is higher than yield offered by the S&P 500 at 1.8% or XLF at 1.5%.
- Dividend payout ratio of just 31% which leaves room for future dividend growth, smart acquisitions and share repurchases.
- Cheap valuation of 12.7 times forward 2020 earnings.
- Strong franchises with 99 million customer bank accounts, #1 credit card issuer in America under the Chase brand, strong asset management division with $2.7 trillion in AUM, #3 asset custodian in the world, #1 multi-family investment property lender in America, etc.
- High price to book value of 1.8 versus the historical average.
|Market Capitalization||$433 Billion|
|Forward PE Ratio||12.7 times 2020 earnings|
|Dividend Growth (5 Year Avg.)||16.6%|
|Dividend Payout Ratio||31%|
|EPS Growth (5 Year Avg.)||15.2%|
|2018 Revenues||$118.7 Billion|
JP Morgan Stock Ex-Dividend Dates
|Total dividends in 2019:||$ 3.3000|
|Total dividends in 2018:||$ 2.4800|
|Total dividends in 2017:||$ 2.0400|
JP Morgan Stock Price
The most recent price for JPM Stock can be found by visiting the company’s Investor Relations page and clicking on “Shareholder Information.”