John Buckingham is a leading value investor and money manager; in his newsletter, The Prudent Specul...
Top Picks 2020: JPMorgan (JPM)
01/20/2020 5:00 am EST
JPMorgan (JPM) is the best run bank in the world and its excellence starts at the top with CEO Jamie Dimon; he has simply been the best big bank CEO during his 14 years at the helm, asserts Brett Owens, editor of Hidden Yields.
Dimon's stock should continue to accelerate higher because, first and foremost, he runs a better bank. JPMorgan's low overhead ratio shows that the firm minimizes its operating costs.
Profits are reinvested smartly, as shown by his ROTCE (return on tangible common-shareholders'-equity). A dollar saved generates $1.17 for Dimon, which is an industry best.
His second focus is relentless business growth. If you ask him about external factors such as a flat yield curve, he'll point out that every bank has to deal with it and he's focused on growing his bank's many business lines regardless. The result has been compounded annual earnings-per-share (EPS) growth of 21% over the past decade.
The firm has increased its dividend by 1,700% over the last decade. And its payout growth is accelerating even higher. Plus, JPMorgan buys back bank vaults of its own shares. The company has reduced its public float by 18.8% over the last 10 years, with most of the repurchases (14.5% of float) coming in the last five.
Fewer and fewer shares create a virtuous cycle for investors who hold the remaining ones. Everything that JPMorgan reports on a "per share" basis, such as earnings and dividends, look better and better as the denominator shrinks.
This is why people get rich buying the stocks of big banks! These monoliths print money. And they're not building factories or investing in new facilities to grow, either, so firms like JPMorgan have nothing to do with their leftover cash other than to give it back to shareholders in the form of dividends and buybacks.
JPMorgan shares are breaking out to new all-time highs. However, they are still drastically underpriced compared with their recent dividend growth and future payout potential.
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