Yesterday JPMorgan Chase (JPM) cut its quarterly dividend by 87%, from $0.38 to $0.05. Chief Executive Jamie Dimon said the cut was a precaution to ensure that the company has financial flexibility if economic conditions worsen. The move will save the company about $5 billion annually.
Dimon said the dividend cut is not directly related to the Troubled Asset Relief Program, although it helps the company to maintain a strong capital position. JPMorgan, has received $25 billion in TARP money. JPMorgan has been deemed to be in the best financial shape of the other major banks.
The move is also supposed to save funds to repay the TARP money faster. JPMorgan Chase (JPM) also reaffirmed that it would be willing to increase dividends once economic conditions are more favorable.
Investors are now wondering which bank is next to cut its dividends. Some believe that Wells Fargo and US Bank, which received $25 billion and $6.6 billion respectively, are next in line for a dividend cut. With its current yield of over 16% however, most investors are expressing serious doubts about the sustainability of the current dividend payments.
Wells Fargo (WFC) is more likely to cut, as its acquisition of Wachovia would most certainly increase the need of the bank for cash. With a current yield of 12.5%, WFC seems like the lowest yielding financial stock out there. In the current tough credit environment however, I wouldn’t count on the safety of any financial dividend.
US Bank (USB) might be more susceptible for a dividend cut, as its payout ratio is very high currently. Furthermore the bank failed to increase its dividend in December for the first time in over 3 decades. Other companies such as Bank of America (BAC) failed to raise their dividends just months before cutting their payments to shareholders.
Traditionally, bank stocks were one of the best dividend investments for shareholders. It seems that TARP essentially is bad news for dividend investors, as it could result in further decreases to already lowered payments. The lesson to be learned for long-term investors is to diversify across sectors, no matter how great the dividend yields look.
Relevant Articles:
- Can USB and WFC maintain their current dividends?
- Which Bank will be next? Follow the dividend cuts
- Dividend Aristocrats in danger
- Dividend Cuts - the worst nightmare for dividend investors.
Popular Posts
-
The S&P Dividend Aristocrats index tracks companies in the S&P 500 that have increased dividends every year for at least 25 years ...
-
A lot of people would tell you that receiving a dividend is the same as selling stock That's deceptive at best, and an outright lie at ...
-
Today marks the 18th year of the Dividend Growth Investor blog. I started it on my kitchen table 18 years ago, as a way to share my throught...
-
Phil Fisher is one of the best investors in the world. He managed portfolios for a small group of clients over a period of several decades. ...
-
As a dividend investor, I do not really look at stock price charts. The things I look for are trends in earnings and dividends, catalysts f...
-
Warren Buffett's investment in Coca-Cola (KO) is really fascinating. He started buying it in 1988 after the 1987 Stock Market crash. Buf...
-
Charlie Munger is Warren Buffett’s business partner at Berkshire Hathaway. He is a successful lawyer, and investor, who was instrumental i...
-
A dividend champion is a company which has a 25 year record of annual dividend increases. There are only 146 such companies in the US toda...
-
One of my favorite charts shows a listing of eleven consumer goods companies, and the brands that they own. It reinforces my belief that str...
-
As a dividend growth investor, I have owned shares in major tobacco companies such as Altria (MO) , Phillip Morris International (PM) and B...
