JPMorgan Announces $6.4 Billion In Share Buybacks Along With 10% Dividend Hike

JPMorgan (NYSE:JPM) detailed its capital plan for 2015 late last Wednesday, March 11, after getting it approved by the Federal Reserve as a part of the annual review of the banking sector. ((JPMorgan Chase Plans Dividend Increase and $6.4 Billion Capital Repurchase Program, JPMorgan Press Releases, Mar 11 2015)) The largest U.S. banking group faced a minor hiccup as a part of the stress tests this year, as the Fed asked it to resubmit its capital plan for 2015 earlier this month (see Fed Stress Test For Banks: Rationale, Results & Implications). But the regulator saw no issues with the fresh plan, which included an increase in quarterly dividends from $0.40 to $0.44 a share, and a $6.4-billion share buyback program. Considering the fact that JPMorgan secured an approval for a slightly higher share repurchase plan ($6.5 billion) last year, it can be safely assumed that this is the component the bank shrunk as a part of the resubmitted plan.

Notably, the bank’s proposed capital plan entails a total payout of around $13 billion to investors over the next four quarters – only slightly below its record $13.2 billion payout for 2007. Investors cheered this announcement by leading JPMorgan’s shares 4% higher over trading last Thursday.

See our full analysis for JPMorgan Chase here

We maintain a $65 price estimate for JPMorgan’s stock, which is about 5% ahead of the current share price.

JPMorgan has been fairly liberal with its policy of returning cash to investors over the years, with the bank splitting its payout almost equally between dividends and share repurchases over the years. The banking giant paid 34 cents in quarterly dividends for years (Q2 2001 to Q2 2007), until it revised it upwards to 38 cents in the third quarter of 2007 – only to slash it to 5 cents in Q2 2009 in the wake of the economic downturn. ^[1] The bank hiked dividends five-fold to 25 cents in Q2 2011, and has gradually increased this figure each year to reach the current level of 40 cents a share. This figure will jump to 44 cents apiece for this quarter once the bank’s board clears this move in April.

The table below summarizes JPMorgan’s capital return figures for each year since 2007, and has been compiled using figures reported in annual reports:

JPMorgan has paid out at least $2 billion to investors each year over the last decade despite the economic downturn of 2008, with the figure reaching a high of $13.2 billion in 2007. Over this period, the bank has returned a whopping $80 billion in cash to common shareholders – representing almost 62% of its total retained earnings on an average. At the same time, the fact that the total dividend payout over these years has been roughly $42 billion, while share buybacks have cost the bank $39 billion, shows that JPMorgan does not prefer one method of returning cash over the other. It should be noted that there is a discrepancy in the buyback plan announced for 2014 ($6.5 billion) from the figure shown in the table above ($4.76 billion) due to the fact that these payouts are over a calendar year, whereas the Fed clears capital plans for a one-year period beginning from the second quarter of a year.

Assuming that JPMorgan’s shares remain constant around the current figure of 3.7 billion, its proposed capital plan signifies dividend payouts of roughly $6.5 billion for 2015. Taken together with the $6.4 billion share repurchase program, this means that JPMorgan is looking to return just under $13 billion in cash to investors. The fact that it was forced to resubmit its capital plan for 2015 indicates that the bank was actually aiming for a higher payout figure. But with JPMorgan being the only banking giant to fall short of the strict capital requirements being proposed by the Fed (see A Look At Common Equity Tier 1 Capital Ratios For The Largest U.S. Banks), this is the prudent thing to do in the long run.

We represent dividend payouts in our analysis of JPMorgan Chase in the form of an adjusted dividend payout rate, as shown in the chart below. You can see how a change in the bank’s policy of returning cash to investors affects its share price by making changes here.

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1. JPMorgan Chase Dividend Information [↩]