Most income investors look for a dividend stock that, first and foremost, pays a high yield. But there are other factors income investors will want to consider as well.
Steady earnings and lots of cash and liquidity are also important to be able to maintain that dividend year after year. In addition, it is important to have a stock that actually generates strong returns year in and year out, so you have some long-term capital appreciation to go along with dividend income.
One stock that checks all of these boxes is JPMorgan Chase (JPM 0.28%). Here is why this is a great option for investors who are looking for a dividend stock to deliver regardless of market conditions.
JPMorgan Chase has a fortress balance sheet
JPMorgan Chase is known for its fortress balance sheet, a term CEO Jamie Dimon uses to describe the bank's focus on having lots of cash and liquidity to be prepared for a severe economic downturn. It is why JPMorgan Chase fared better than its competitors during the Great Recession, and why it has been able to consistently increase its dividend since then.
After the Great Recession, the Federal Reserve imposed rules for large banks, requiring them to have enough liquidity to withstand a shock, so the fortress grew even stronger -- as JPMorgan Chase was already the best equipped among its peers to weather an economic storm.
Over the past few years, we've had a pandemic that shut down the economy and a string of bank failures just this year, and JPMorgan Chase navigated both of these shocks without reducing its dividend.
The bank currently pays out a quarterly dividend of $1 per share at an above-average yield of 2.93%. It has a low payout ratio of 29% and has grown its dividend by about 12% per year over the past five years. It has increased its annual dividend for 12 straight years.
JPMorgan Chase has not yet boosted its dividend this year, but the company typically does so in the fourth quarter.
Why JPMorgan Chase stock is still a safe bet
The company should have no problem maintaining or increasing its dividend in the foreseeable future, as its balance sheet remains fortified.
It has a common equity tier 1 ratio of 13.8%, which is well above the regulatory minimum of 12.5% and 60 basis points higher than it was in the first quarter of 2022. Revenue was up 25% in the quarter while net income rose 52% year over year to $12.6 billion.
And while most banks saw deposits drop in the first quarter, JPMorgan Chase saw a 2% increase in deposits compared to the previous quarter, as many investors considered it as a safe haven amid the storm.
Also, the bank is swimming in cash, with $1.4 trillion, which allowed it to acquire the assets from First Republic Bank, which failed in April. This acquisition should help bolster its business among high-net-worth clientele and generate more than $500 million worth of incremental net income per year.
Large banks like JPMorgan Chase could face stricter liquidity standards as there have been reports that the Federal Reserve could increase capital requirements by 20% to better ensure that banks can handle financial stresses. This could potentially prevent it from boosting its dividend this year, but that remains to be seen.
But no bank is better positioned to handle a capital-requirement boost than JPMorgan Chase, and it should not derail its ability to consistently deliver dividends to its shareholders, given the bank's consistent earnings growth, efficiency, and low payout ratio.
The added bonus for the bank's investors is that it has produced a 10.4% annual return over the past 10 years, as of June 15, and a 13.4% annual return when the dividend is reinvested.
JPMorgan Chase might have its short-term ups and downs, particularly during periods of economic stress, but investors should be able to count on a consistent dividend and strong returns from this safe, rock-solid bank.