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JPMorgan Chase’s Higher Payout Ratio Is Likely to Continue in 2018

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Mar. 27 2018, Updated 6:31 a.m. ET

Shareholder payouts

JPMorgan Chase (JPM) has rewarded shareholders with higher yields and repurchases in 2017. 2H17 witnessed a steep rise in stock repurchases mainly due to higher operating cash flow generation in its core banking division. In 4Q17, the bank returned a total of $6.7 billion to shareholders through dividends and repurchases, up from $4.5 billion in the previous quarter. The payouts formed 100% of net income.

Due to expectations of higher operating cash flows as a result of tax cuts, banks are expected to widen their payout program via dividends and repurchases. In 4Q17, JPMorgan Chase paid dividends of $0.56, higher than its 4Q16 payout of $0.48.

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JPMorgan’s annualized dividend yields at new payouts stood at 2.0%, while its peers reported the following yields:

  • Wells Fargo (WFC): 2.8%
  • Bank of America (BAC): 1.5%
  • Capital One Financial (COF): 1.6%

Together, these banks make up 28.9% of the Financial Select Sector SPDR ETF (XLF).

Repurchases set to rise

Banks are trying to improve return on equity (or RoE) by engaging in higher repurchases amid higher operating cash flows. JPMorgan Chase repurchased 47.8 million shares at an average price of $100.7, up from 29.8 million shares at an average price of $75.6 in the prior-year period. In 1Q18, repurchases are expected to remain buoyant, especially amid opportunities from the rout in global equities.

JPMorgan Chases and other major bankers cleared stress tests and thus have regulatory approval on improving their payout ratios. Lower taxes and higher interest spreads could help in improving operating as well as net margins. The bank has an annualized rate of 6.8% of total market capitalization considering 4Q17 payouts, reflecting healthy contribution.

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