JPMorgan’s 2016 Capital Plan Will See Investors Receiving $17 Billion Over Next Four Quarters

JPMorgan (NYSE:JPM) detailed its capital plan for 2016 last week, after getting it approved by the Federal Reserve as a part of the annual review of the banking sector. ((JPMorgan Chase Plans $10.6 Billion Capital Repurchase Program, JPMorgan Press Releases, Jun 29 2016)) The largest U.S. banking group sailed through the quantitative phase of the Fed’s stress test for the year, and the regulator had no issues signing off on the bank’s plans to return as much as $17 billion to shareholders through dividends and share repurchases. While the bank is retaining quarterly dividends at the current level of 44 cents a share, a bulk of its payout will be in the form of a new $10.6 billion share buyback program.

Notably, if JPMorgan adheres to the proposed payout plan over Q3 2016-Q2 2017, then the bank will hand out $16.3 billion in cash to investors over 2016 – making it the largest payout in dollar terms in its history (well ahead of the current record of $13.2 billion for full-year 2007).

See our full analysis for JPMorgan Chase here

We maintain a $70 price estimate for JPMorgan’s stock, which is about 15% ahead of the current share price. The price discrepancy can primarily be attributed to the sharp sell-off in bank shares over recent months as fear of the U.K. leaving the European Union grew, even as key economic indicators point to weak growth figures in the near future.

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. ^[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 44 cents a share. Dividends will remain at this level at least until Q2 2017.

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 $13.2 billion in 2007. Over this period, the bank has returned a whopping $92 billion in cash to common shareholders – representing about 56% of its average retained earnings. At the same time, the fact that the total dividend payout over these years has been roughly $48 billion, while share buybacks have cost the bank $34 billion, shows that JPMorgan does not prefer one method of returning cash over the other.

Assuming that JPMorgan’s shares remain constant around the current figure of 3.6 billion, its dividend payout for 2016 are not expected to change much compared to that for 2015. However, the bank repurchased $1.7 billion in shares over Q1 2016 and had authorization in place to repurchase an additional $2.9 billion for Q2 2o16 – taking the total repurchase figure over the first half of the year to $4.6 billion. Taken together with $5.3 billion in proposed purchases for the rest of the year (half of the total proposed repurchases of $10.6 billion), this points to total share repurchases just shy of $10 billion in 2016.

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 [↩]