Forecasting JP Morgan Chase Dividend Increase
Yesterday, JP Morgan Chase (JPM: 56.05 +0.43%) announced that the bank would keep their quarterly dividend steady in July. Some investors were likely disappointed with this announcement given that the financial giant currently only pays investors $.20 per share annually and yields only 0.5%.
While maintaining the paltry dividend may have been disappointing to some, it was hardly unexpected. Jamie Dimon, JP Morgan Chase CEO and Chairman, has discussed in the past that any decision to increase the company’s dividend will be dependant on three factors:
1. An improvement in the unemployment rate
2. An improvement in consumer’s ability to meet their debt obligations
3. A decision from Federal regulators on adequate capital reserve levels
While there are signs of progress in all three areas, we are probably still several months away from seeing enough improvement to warrant a dividend increase.
However, JPM did hold out a very enticing carrot to investors this week. Mr. Dimon reaffirmed that the bank will eventually increase their dividend payout to 30 – 40% of earnings.
Next year, Wall Street expects JP Morgan Chase to earn $4.76 per share. We would expect that by JPM will increase its dividend by early 2011. Assuming only a 30% payout ratio would equate to $1.43 per share annually and yield 3.7% based on yesterday’s closing price.
While this would represent a hefty increase over today’s dividend level, it would take JPM’s yield back to its historical levels.