JPMorgan Chase All But Murders Its Dividend (JPM)

As we have been expecting in the banking sector, JPMorgan Chase & Co. (NYSE: JPM) is leading the way for more and more banks to cut their dividends.  The company announced plans to slash its payout after the close. The cut was not a surprise, but the amount that is coming off the dividend is staggering.

JPMorgan will slice the $0.38 dividend to $0.05.  This will be effective for the dividend payable April 30, 2009 for shareholders with a record date of April 6, 2009.

The board anticipates maintaining this dividend level for the time being. Here is the annual savings: $5 billion in common equity per year.

Jamie Dimon and friends did note that the company’s first-quarter 2009 financial performance is solidly profitable even after significant additions to reserves.  The company further stated that the outlook for the quarter is roughly in line with analyst expectations.

Shares closed down almost 2% at $19.51 and its 52-week trading range is $17.70 to $50.63.  The stock is down another 1.5% at $19.22 after this news.  The reduced dividend will generate a yield of only about 1%.  Cutting the dividend to save on cash is a good thing in the current climate, but that is a drastic cut.

Dimon further stated, “Today’s capital action is not directly related to TARP. Our reason for accepting TARP capital still holds — namely to help stabilize the banking system and economy. The decision to retain additional common equity does, however, help position our company to repay TARP as soon as is prudent — and still maintain a strong capital position. Our repayment of TARP will ultimately be worked out in consultation with the U.S. Treasury and other regulators, and in consideration of the best interests of the banking system overall.”

Jon C. Ogg
February 23, 2009