JPMorgan Chase (JPM -0.46%) has built its reputation for stability and strength on its fortress balance sheet.
CEO Jamie Dimon often used that phrase to describe the company during the Global financial crisis of 2008-2009, when JPMorgan Chase stood strong amid the financial meltdown that brought down major banks and businesses.
In Dimon's 2007 letter to shareholders, he wrote, "We operate in risky businesses, and having a fortress balance sheet is a strategic imperative, not a philosophical bent. It is also a critical differentiator for us -- especially in uncertain times."
He then explained that the fortress consists of conservative accounting, strong loan loss reserves, diligent review of assets and liabilities, disciplined reporting and reviews, deep understanding of the margins and returns of each business, recognition of market cyclicality, and continuous analysis to deliver solid returns through the cycle -- not just in good times.
It served JPMorgan Chase well then, as it had market-beating returns and enough capital to essentially acquire two failed banks, Washington Mutual and Bear Stearns.
So, given this unyielding focus on capital strength, JPMorgan Chase is built to return capital to investors through dividends and share repurchases.
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16 years of dividend raises
JPMorgan Chase has increased its annual dividend every year since the end of the Global financial crisis, including this year, its 16th in a row. In September, it authorized a dividend of $1.65 per share, a 10% increase over the previous quarter.
The bank also authorized a $50 billion share repurchase plan on July 1. This is possible because of that fortress balance sheet, as Dimon explained back in June. "Our fortress balance sheet, with significant excess capital and robust liquidity, enables us to be a pillar of strength, allowing us to consistently serve our clients and communities," he said.
The significant excess refers to its wide capital buffer. The firm has total capital of $303 billion, which translates to a common equity tier 1 (CET1) ratio of 14.1%. That is well above the Federal Reserve-mandated CET1 ratio requirement of 11.5%. That 2.6% difference represents excess capital beyond what is needed to navigate an extreme economic stress event, like a recession.
So that excess is going to be returned to investors through dividend raises and share buybacks.
Why JPMorgan Chase will boost its dividend in 2027
The Fed's 11.5% CET1 ratio requirement will stay in place until Sept. 30, 2027, so JPMorgan Chase should still have plenty of excess capital to raise its dividend again in 2027.
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Key Data Points
Another sign of its financial strength and ability to raise its dividend is its payout ratio. The payout ratio is the percentage of earnings paid out as dividends. Currently, JPMorgan Chase pays out just 27% of its earnings as dividends, which is lower than most banks and dividend stocks.
But low is good, because it means that the dividend is safe. A high payout ratio, say over 50% or 60%, means the company has less cash at its disposal to raise the dividend.
JPMorgan Chase was one of the few large banks that didn't cut its dividend during the COVID crash. So barring a major economic meltdown, its dividend is in great shape to increase for a 17th straight year in 2027.
