Jamie Dimon Wants a Higher J.P. Morgan Dividend
JPMorgan Chase & Co. (NYSE: JPM) is almost certain to get another dividend hike approval after the Fed’s 2015 CCAR. CEO Jamie Dimon is committing to lower deposits while keeping a fortress balance sheet, and the London Whale issue is now almost two years back.
What investors should know is that Dimon and the investment community were disappointed with the dividend hike that was allowed in the 2014 CCAR. It seems likely that J.P. Morgan will be freed up to announce another dividend hike after the CCAR review and that the payout will come in the summer. If Dimon’s voice and presentation in late February are correct, it hopefully will be a better hike than the paltry two cents to $0.40 per quarter approved in 2014. Still, J.P. Morgan yields close to 2.7% now.
Following the banking crisis in 2009, J.P. Morgan slashed its dividend to a measly $0.05 from $0.38. It took roughly two years for the banking giant to raise the dividend to $0.25 in 2011. The next year, the dividend was increased again to $0.30, and then the following year to $0.38. It was not until July of 2014 that the dividend passed the $0.38 mark, from back in 2009, to $0.40.
JPM Update March 11 – Dividend and Buyback hike approved!
Here is what is really important: Dimon said that J.P. Morgan wants to take its payout ratio up to 50% of normalized earnings from 30% or so now. The trick is that investors simply may have to wait for years before that is fully adopted. Dimon even warned about this regulatory framework taking a long time.
P&G Dividend Growth Nears 60 Years
Procter & Gamble Co. (NYSE: PG) has been in the business of raising its dividends for almost 60 years now, even during the recession. The problem is that the consumer products giant has reached a point where raising the dividend above its earnings growth is becoming a challenge. Its dividend hike in 2014 was announced in early April, and that was a 7% boost. Its smaller rival Kimberly-Clark only raised its payout by 4% in 2014, and then it announced in mid-February a 4.8% payout hike for 2015.
The reality is that the company has another issue to deal with. Selling Duracell was only one step. It has literally dozens of brands that are up for review to be sold or spun out of the company. It has so many brands that thinning out the portfolio is almost certain, to allow management to focus on its growth brands.
Procter & Gamble’s dividend is $2.57 on an annualized basis, and its consensus earnings per share estimates are $4.02 in 2015 and $4.35 in 2016. Earnings growth has stagnated, as has revenue growth. All we can do is assume a 5% or so baseline hike for the company to say it remains focused on dividend growth. It currently pays a yield of 3.0%.
Southwest: The King of Airline Dividends?
Southwest Airlines Co. (NYSE: LUV) was the first airline in modern years to even have a dividend. The company has managed to grow organically and also by its AirTran acquisition, and now it is looking to expand by growing routes outside of the U.S. core market.
At its annual meeting in May of 2014, Southwest raised its payout by 50%. It also accelerated share buybacks as well. What investors have to consider is that airline stocks have surged. Southwest shares are up 100% from a year ago. So the 50% payout of 2014 that generated a yield north of 1.0% is back to about 0.55%, now that shares have risen so much.
Airlines have not been the biggest dividend payers in the market in recent years. Now the industry has consolidated, and the ability to charge ever more fees and higher ticket prices is changing the attitude of airline executives wanting to please shareholders.
It seems odd to expect a company to raise its dividend by 50% two years in a row, but the company may simply have little choice. The $0.24 per share annualized payout now compares to consensus earnings estimates of $3.50 per share for 2015. With Southwest having almost all of its business in the United States and no currency woes, the company has a lot of room for dividend hikes ahead — maybe even more than last year.
Wells Fargo Targets Much Higher Payout Ratio
Wells Fargo & Co. (NYSE: WFC) is now top dog in the banking sector because it has limited exposure to the financial trading caps and limitations that the other money center banks have. Wells Fargo is deemed to be the healthiest, or least problematic, of the major banks by regulators as well.
With the Federal Reserve’s CCAR review imminent, Wells Fargo seems a shoo-in to be approved for yet more dividend payouts. The question is by how much. Wells Fargo was forced to face the same financial storm in 2009 when it cut its dividend to $0.05 from $0.34. Similar to J.P. Morgan, Wells Fargo waited until 2011 to raise its dividend to $0.12, followed by a jump to $0.22 in 2012. After that, the dividend was increased in 2013 to $0.30 and then to its current level of $0.35 in 2014.
It seems safe to expect that Wells Fargo’s dividend will move up to $0.40 after the Fed’s CCAR in March. That would be annualized rate of $1.60, which is a payout ratio of about 40% of the $4.16 in earnings per share expected for 2015. But note that Wells Fargo last year said it ultimately wants to target a payout ratio of 55% to 75%. Just don’t expect that to all come at once — even from the safest of the large banks.
Wells Fargo update March 11 — Dividend and buyback approved!