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JPMorgan's $6.5 Billion Share Repurchase Plan Complements 5% Dividend Hike

By: Trefis
Posted: 4/4/2014 1:50:00 PM
Referenced Stocks: JPM;BAC;C;WFC;GS

JPMorgan Chase ( JPM ) announced a 5% increase in its dividend last week after the Federal Reserve cleared its capital plan for the year as a part of its annual comprehensive review of banks. (( JPMorgan Chase Plans Dividend Increase and $6.5 Billion Capital Repurchase Program , JPMorgan Press Releases, Mar 26 2014)) The diversified banking group will hand out 40 cents in quarterly dividends starting Q2 2014 - up from the 38-cent figure it currently pays shareholders. The bank will also repurchase $6.5 billion worth of shares by the end of Q1 2015. Given the bank's roughly 3.8 billion outstanding shares, the overall plan implies a payout of $12.5 billion to investors over the next four quarters - the highest figure since the economic downturn of 2008, and slightly below the record payout of $13.2 billion in 2007. At current market prices, the buyback plan should reduce the number of JPMorgan's outstanding shares by almost 3%.

It should be noted that the Fed's approval of JPMorgan's capital plan was unconditional - unlike the conditional approval given to its plans to increase dividends from 30 cents to 38 cents and to initiate a $6-billion share repurchase program last March.

We maintain our price estimate for JPMorgan Chase at $62 - slightly above the current market price - as the announced capital plan is largely in line with what we forecast for 2014.

See our full analysis for JPMorgan's stock here

JPMorgan managed to steer clear of huge losses in the wake of the economic downturn of 2008, and therefore did not have to clamp down on its dividend payouts to the extent of peers such as Bank of America and Citigroup between 2008 and 2012. While the bank did reduce its dividends in 2009-2010 to focus on shoring up its balance sheet, dividend hikes in subsequent years ensured that investors currently receive dividends on par with what they were getting at the time of the downturn. The recently announced dividend growth takes JPMorgan's dividend to its highest level since its 3:2 stock split in 2000.

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

(in $ mil) 2005 2006 2007 2008 2009 2010 2011 2012 2013
Common Stock Dividends 4,865 4,842 5,051 5,237 2,095 844 3,266 4,541 5,251
Shares Repurchased 3,412 3,938 8,178 - - 2,999 8,863 1,653 4,789
Total 8,277 8,780 13,229 5,237 2,095 3,843 12,129 6,194 10,040

It should be noted that the value of shares repurchased by JPMorgan in 2013 ($4.8 billion) is lower than the proposed figure of $6 billion last year, as the financial reporting period is from January to December, whereas the capital plans are cleared over an April to March period. In other words, JPMorgan can spend up to $1.2 billion this quarter as a part of the plan which was approved by the Fed last year.

The proposed 40-cents per share quarterly dividend will boost the total dividends paid by the bank in each quarter starting in Q2 2014 to roughly $1.5 billion. The bank will also initiate a fresh share repurchase program in April to buy back up to $6.5 billion worth of shares by the end of March 2015. We factor in these payouts in our analysis of JPMorgan in the form of an adjusted dividend payout rate shown in the chart below. You can understand how a change in the bank's adjusted dividend payout affects its share value by making changes to the chart below.

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