Strong Quarterly Profits Exceed $6 Billion, Ranks Amongst the Most Profitable American Banks
On July 15th, JPMorgan Chase (NYSE:JPM) released strong quarterly results for the period ending June 30, 2014. The results were driven by strong consumer deposits, corporate and investment banking, and commercial banking revenues. Net income of $6 billion or $1.46/share was reported, compared with net income of $6.5 billion in the second quarter of 2013 or $1.60/share. Wells Fargo (NYSE:WFC), who is also amongst the top banks in the U.S., released their quarterly earnings the same week. Wells Fargo reported a profit of $5.7 billion or $1.01/share which was up from $5.5 billion, or 98 cents, year over year. Although JPMorgan's quarterly profits dipped year over year the company still maintains a very healthy profit even when compared to the likes of Wells Fargo. Jamie Dimon, Chairman and Chief Executive Officer commented in a press release:
"Despite continued industry-wide headwinds in Markets and Mortgage, the firm has continued to deliver strong underlying performance. Consumer & Community Banking deposit growth and card sales volume both outpaced the industry, and we had record loan originations in Business Banking. The Corporate & Investment Bank saw strong performance in fees with #1 position in Global IB fees YTD, global debt and equity, global syndicated loans and global long-term debt. Commercial Banking clients generated record investment banking revenues in the first half of the year. Asset Management had excellent performance across all measures."
JPMorgan Returns Approx $3 billion Back to Shareholders
In the company's most recent quarter a total of approximately $3 billion was returned back to its shareholders through dividends and the repurchasing of $1.5 billion worth of common equity. Collectively, this is a strong signal that the company is on track to re-establishing credibility in the market by placing common shareholders as a high priority. Regarding the stock dividend, it was increased by 7% from .35/share to .40/share. This is yet another bold move that will allow the company's share price to grow while maintaining a strong dividend yield.
JPMorgan offers its shareholders a moderate but growing dividend of $0.40/share which based on current stock levels yields around 2.8%. Further, the bank has been increasing distribution of profits back to shareholders via dividends. In 2009, due to the global financial crisis, the company was forced to severely reduce its quarterly dividend down to .05/share but the company has steadily increased the payout back to its pre-crisis levels. This is a strong indication that the company is attempting to gain the markets confidence and boost shareholder value. JPMorgan's yield of 2.8% is rather healthy when compared to the other large American banks: Citigroup offers a yield of only .08%, Bank of America at .26% and Wells Fargo at 2.73%. Canada's Toronto-Dominion Bank (NYSE:TD) who is best known for its successful U.S. market entrance through a number of high profile acquisitions offers its shareholders a steady dividend which yields 3.40%.
Analyst Remain Bullish On Stock Upside
According to sources, the consensus forecast amongst 31 polled investment analysts covering JPM Chase advises that the bank will outperform the stock market. Further, the same source reports that the analysts offering 12-month price targets for JPM Chase have a median target of $66.30/share. The highest projection on the stock is placed at $76.27/share, which represents a potential of an additional 35% upside on the stock, coupled with a 2.8 % dividend payment. The lowest share price target is still bullish at $60.00/share representing a 6.2% price increase.
Not only are analysts bullish on the company, but Jamie Dimon also sent an encouraging message to the street. In the companies press release he comments on several different aspects of the company including his pride in the organization:
"This quarter marked the 10-year anniversary of JPMorgan Chase and Bank One coming together - the company overcame significant challenges and achieved extraordinary things during this time. Each of our businesses is among the best in the world, with increased market share, strong earnings performance and power, and an unwavering focus on serving our clients, communities and shareholders with distinction and dedication. We continue our progress on adapting to the new global financial architecture and on our control agenda. My pride in the company is greater than ever."
Here is why I believe JPMorgan is Investment Grade
JPMorgan has presently set the stage for growth despite a lower year over year profit. The company has positioned itself to handsomely reward shareholders through a moderate but growing dividend, coupled with a strong share repurchase program that will reduce if not maintain the fully diluted shares outstanding. With $6 billion in quarterly profits, there appears to be very little ongoing risk concerns with JPMorgan.
It is in my opinion that JPMorgan is one of the few American banks that is characterized with the key points qualify it as investment grade. Strong, steady, robust quarterly earnings, distribution of capital back to shareholders via growing dividends and a leadership position in the industry, coupled with a possible upside in share price are my investment criterias. JPMorgan and Wells Fargo are the two key American banks which I would confidently classify as investment grade.
JPMorgan is a an ideal fit for long term shareholders looking to invest in a stable, mature business seeking growth through share price appreciation and dividend reinvesting.
Disclosure: The author is long TD. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.