JPMorgan’s Plan To Return $27 Billion To Shareholders Is The Biggest Ever By A U.S. Bank

Earlier this week, JPMorgan (NYSE:JPM) detailed plans to return a whopping $27 billion in cash to shareholders over the next twelve months, after the Federal Reserve signed off on the plan as a part of it annual stress test for banks (see Fed Clears Capital Plans Of All U.S. Banks Subject To Stress Tests For The First Time In Seven Years). The capital return plan is easily the largest by any bank this year – dwarfing the next biggest plan from Citigroup to return almost $19 billion over the same period. More importantly, if JPMorgan adheres to this plan, then its total payout for the year 2017 will be in excess of $23 billion – the highest in a single year by any U.S. bank, and comfortably ahead of the current record of $21.9 billion by Citigroup in 2005.

The diversified banking giant’s capital return plan includes a 12% hike in quarterly dividends from the current level of 50 cents a share to 56 cents a share, which works out to total dividends of $7.9 billion assuming average outstanding shares of 3.5 billion. Taken together with the new $19.4 billion share buyback program, this equals the record $27.3 billion payout. We are currently in the process of updating our price estimate for JPMorgan’s stock to factor in the significantly higher-than-expected capital returns for the year.

See our full analysis for JPMorgan Chase here

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 more than six 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. The bank hiked dividends five-fold to 25 cents in Q2 2011, and has gradually increased this figure over the years to reach the current level of 50 cents per share. Dividends are now expected to remain at 56 cents per share over Q3 2017 – Q2 2018.

The table below summarizes JPMorgan’s capital return figures for each year since 2005, and has been compiled using figures reported in annual reports:

JPMorgan has paid out at least $2 billion to investors each year since 2005 despite the economic downturn of 2008, with the figure reaching a high of $15.9 billion in 2016. Between 2005 and 2016, the bank has returned $108.3 billion in cash to common shareholders at an average of $9 billion a year – representing about 58% of its average retained earnings of $15.5 billion for this period. At the same time, the fact that the total dividend payout over these years has been roughly $55 billion, while share buybacks have cost the bank $53 billion, shows that JPMorgan does not appear to prefer one method of returning cash over the other.

JPMorgan announced dividends of 50 cents a share for each of the first two quarters of the year, and is expected to increase this to 56 cents a quarter for the second half, for total dividends of $2.12 per share in 2017. Assuming that JPMorgan’s share count remains constant around the current figure of 3.55 billion (for the sake of simplicity), its dividend payout for 2017 would be $7.5 billion. Also, at the end of 2016, the bank had authorization in place to repurchase $6.1 billion in shares over the first half of 2017. We expect the bank to have used up this figure for buybacks in Q1 and Q2. Taken together with $9.7 billion in proposed purchases for the rest of the year (half of the total proposed repurchases of $19.4 billion), this points to total share repurchases of $15.8 billion in 2017.

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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