Truly exceptional businesses tend to make for truly exceptional investments. That’s especially true over a longer period of time. Buying into a truly exceptional business at an opportunistic valuation only intensifies things. Intelligent investing isn’t that difficult. When it comes right down to it, it’s all about investing in truly exceptional businesses at appealing valuations. One investment strategy excels at playing this out. It’s dividend growth investing.
JPMorgan Chase & Co. (JPM) is a financial holding company that operates as one of the largest financial institutions in the United States, with over $3.5 trillion in assets. They offer various financial products and services across traditional retail and commercial banking, asset management, and investment banking. Founded in 1799, the bank is now a $460 billion (by market cap) global financial juggernaut that employs almost 300,000 people. The company operates across four major business lines: Consumer & Community Banking, 42% of FY 2020 net revenue; Corporate & Investment Bank, 40%; Asset & Wealth Management, 12%; Commercial Banking, 8%. They also have a Corporate business segment that results in insignificant negative revenue.
The bank has already increased its dividend for 10 consecutive years. And with the recent announcement that they plan on increasing the dividend by 11.1% with the next dividend declaration, that track record is about to get longer. Meantime, the five-year dividend growth rate of 15.4% is stellar. And this double-digit dividend growth comes along with the stock’s current yield of 2.67% (factoring in the upcoming dividend raise). This yield easily beats the market, and it’s almost 30 basis points higher than the stock’s own five-year average yield. The low payout ratio of 31.7% easily protects the new $1.00/quarter dividend. I like dividend growth stocks in what I refer to as the “sweet spot” – that’s a yield of between 2.5% and 3.5%, paired with a high-single-digit (or better) dividend growth rate. This stock is right in the sweet spot. CFRA rates JPM as a 4-star “BUY”, with a 12-month target price of $179.00. I came in very close to where CFRA landed. Averaging the three numbers out gives us a final valuation of $164.67, which would indicate the stock is possibly 10% undervalued.
Bottom line: JPMorgan Chase & Co. (JPM) is a very large and high-quality financial institution across the board. They’ve performed admirably throughout the pandemic, and they’re positioned to thrive for years to come. With a market-beating yield, double-digit dividend growth, a low payout ratio, and the potential that shares are 10% undervalued, this is a compelling idea in this market for dividend growth investors.
Video Length: 00:12:25
Comments
Log in or sign up to join the conversation.