JPM Close to announcing next dividend increase

What's Happening

Financial giant JP Morgan ( JPM ) has boosted its dividend each of the last five years, and it is likely to announce its next dividend increase as early as this week. The stock is currently yielding 2.87%, and shares have fallen by 6.9% on the year.

Technical Analysis

JPM was recently trading at $61.46 down $9.15 from its 12-month high and $11.39 above its 12-month low. Technical indicators for JPM are bullish and the stock is in a weak upward trend. The stock has recent support above $61.05 and recent resistance below $64.60. Of the 19 analysts who cover the stock, 11 rate it a "strong buy", two rate it a "buy", five rate it a "hold", and one rates it a "strong sell". The stock receives S&P Capital IQ's 4 STARS "Buy" ranking.

Analyst's Thoughts

Like most bank stocks, JP Morgan was forced to slash its dividend during the great recession, but before that the company had a long streak of rewarding investors with dividend growth, and over the last five years it has returned to dividend growth. The financial sector has been weaker than the overall market in 2016, mostly in reaction to lower expectations of multiple interest rate increases coming from the Federal Reserve during the year. Low oil prices have also been a problem for banking stocks, as it has resulted in higher defaults, but now that oil has begun to firm, we have seen strength return to the financial sector, but the majority of stocks in the sector continue to trade at very low valuations. JPM is no exception, with the stock trading with a P/E of just 10.2. JPM has been a top performer in the sector, and I expect to see the stock build on recent gains following the news of its next dividend increase. Look for news of its next dividend increase to come as early as this week, with the stock trading ex-dividend at the beginning of July.

Stock Only Trade

If you're looking to establish a long stock position in JPM, consider buying the stock under $61.50. Sell if it falls below $55.50 or take profits if it gets to $70.50.

Bullish Trade

If you want to set up a bullish hedged trade on JPM, consider an August 45/50 bull-put credit spread for a 35-cent credit. That's a potential 7.5% return (26.2% annualized*) and the stock would have to fall 18.1% to cause a problem.

Bearish Trade

If you would prefer to take a bearish stance on JPM at this time, consider an August 67.50/72.50 bear-call credit spread for a $0.55 credit. That's a potential 12.4% return (33.9% annualized*) and the stock would have to rise 10.7% to cause a problem.

Covered Call Trade

If you would rather go with a covered call in order to lower the cost basis of your JPM, consider an August $60 covered call. Buy JPM shares (typically 100 shares, scale as appropriate), while selling the August $60.00 call for a debit of $57.70 per share. The trade has a target assigned return of 3.7%, and a target annualized return of 13.1% (for comparison purposes only).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Originally published on

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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