If your entire investing strategy is just plugging your money into a Dow Jones Industrial Average (^DJI +0.63%) fund, that's fine. In fact, it's good. Most investors achieve better results by buying and holding a basket of blue chips than they do by trying to out-trade the market.
If you want to take a shot at a market-beating performance, though, there are a few smart, savvy stocks to consider. Dow component JPMorgan Chase & Co. (JPM +1.23%) is one of those names, and its bullish argument is bolstered by an above-average dividend yield and dividend pedigree.
A well-funded dividend in almost any conceivable scenario
You certainly know the bank. Between its institutional presence under the JPMorgan umbrella and its consumer-facing Chase banks, JPMorgan Chase is the nation's biggest financial institution (as measured by assets).
But wait -- isn't JPMorgan also the big bank that just warned the world an economic headwind is starting to blow? As part of its fourth-quarter results presentation, company management increased expectations for future loan losses to reflect "a modest deterioration in the firm's macroeconomic outlook" and even the possibility of a "mild recession."
Such a slowdown isn't really a threat to the company's dividend, however; it may not even be a threat to the rebound from last year's bottom line lull. In fact, that brewing economic weakness may already be priced into the stock, and then some.
Data source: Thomson Reuters. Chart by author.
It's been mostly overlooked since the company posted its full-year numbers on Friday. But JPMorgan Chase's guidance for $74 billion in net interest income this year is a healthy improvement on last year's $66.7 billion, which was up 28% from 2021's figure of $52.3 billion. The benefit of higher interest rates is far greater than the impact of the decline of the company's investment banking operation. More than that, though, analysts believe this bottom-line growth will pump up per-share profits from last year's $12.09 to $12.89 this time around. For perspective, the company's current annualized dividend is only $4 per share, leaving plenty of leeway to handle even the worst of economic turbulence.
JPMorgan is built to last, and even thrive
Don't misunderstand me. JPMorgan Chase isn't immune to the effects of a recession. One only has to go back to the last recession we suffered back in 2008 -- in the wake of the subprime mortgage meltdown -- to see it. The company was forced to cut its dividend in 2009, and then cut it even more in 2010 due to deteriorating quarterly income that briefly turned into outright quarterly losses. Never say never.
As the old saying goes, though, that was then and this is now. Banks have made a point of not being quite so sloppy with their lending standards to avoid slipping into the same degree of trouble again. In fact, JPMorgan was one of the very first big banks to raise its mortgage standards rather than lower them when the COVID-19 pandemic first started rattling the global economy in early 2020, a measure that still seems to be paying off today. The company's fourth-quarter credit-loss provision of $1.8 billion for its consumer-facing arm is relatively small compared to the $1.1 trillion worth of loans currently on its books.
NYSE: JPM
Key Data Points
Perhaps the biggest detail being overlooked by the market right now, however, is the beneficial impact of higher interest rates.
The Fed Funds Rate currently stands at a 15-year high of just above 4%. And unlike 2008, it's on the way up rather than on the way down. This makes lending activity for all banks more profitable than it's been in years. It matters here and now simply because JPMorgan's consumer and community banking operation is the company's single-biggest business, and most of its revenue is interest-rate related. The key is an economy that's healthy enough to allow borrowers to continue borrowing as well as making payments on their loans. If the predicted recession is as "mild" as JPMorgan expects, that would actually be the ideal scenario for generating net interest income.
It could be a long while before we see another banner year like 2021 for the investment banking business. But Standard & Poor's, The Blueshirt Group, MKM Partners, and Rain Capital are just some of the outfits calling for the shallow beginning of an IPO (initial public offering) rebound in the latter half of this year. JPMorgan Chase is apt to maintain its leading market share of whatever underwriting recovery is in store.
Out-rebounding the rest of the market for a reason
Bottom line? There aren't too many banking stocks in a position to outpace the overall market these days, even when the proxy for the broad market is the Dow Jones Industrial Average. It's not the stodgy, old-school index it used to be, after all. Technology stocks and growth names like Apple and Microsoft are now part of the Dow.
JPMorgan is a standout, though, within and outside of the financial sector. Its sheer dominant size and the deep diversity of its business lines make it unstoppable as a company, which in turn makes its dividend a reliable one. The stock's persistent advance from its September low suggests investors are remembering this now. Priced at only 11 times this year's projected profits, however, there's still plenty of room for more upside.
