J.P. Morgan dividend hike? Not so fast.

By Colin Barr, senior writer


(Fortune) -- A dividend increase is in J.P. Morgan Chase's future, but when?

CEO Jamie Dimon said in his annual letter to shareholders, released Thursday, that the bank would like to boost its annual payout to a range of 75 cents to $1 from the current 20 cents.

dimon_090211.03.jpg
Jamie Dimon wants to raise his bank's dividend.

That's a big jump, though the new number would still be small by historical standards. J.P. Morgan (JPM, Fortune 500) paid $1.52 in dividends in 2008, and paying $1 annually would only bring the dividend back in line with its level a decade ago. The bank slashed the dividend 87% last year in a bid to boost capital amid the financial meltdown

Now that the storm has passed, J.P. Morgan is widely viewed as the strongest giant bank and a candidate to be the first big firm to restore higher payouts to investors. Dimon has noted his intention to raise the dividend before, notably at investor conferences in December and February.

But the timing has been vague, and Thursday's comments did little to dispel that haze. Wall Street is betting on an increase as soon as next month, but uncertainty over the strength of the economic rebound and the shape of new capital rules could push the timetable back.

"If we're lucky [the increase] will be some time this year," Dimon said at the bank's investor day Feb. 25.

On Thursday, he sketched out what the board will need to see for a dividend boost: "several months" of U.S. jobs growth, a decline in losses realized on the bank's consumer loans, and greater clarity on the capital levels banks will be expected to hold under new rules.

Those first two targets could be met by the middle of 2010. Analysts expect the employment report due out Friday from the government to show the economy gained 190,000 jobs in March, marking the biggest gain in three years.

Gains of that size in coming months could clear the way for a dividend boost by easing fears that the economy could "have another dip," as Dimon said in January.

Employment growth should also support improvement in the bank's loan portfolios, particularly its credit card business, which is expected to lose $1 billion in the first quarter.

Betsy Graseck at Morgan Stanley expects the growth of delinquent loans at J.P. Morgan slow in the first quarter and its holdings of nonperforming loans to decline "meaningfully" in the second half of 2010.

Accordingly, some fans are predicting the bank will raise its dividend soon. Graseck, who has a buy on the stock, predicts it will start paying at a $1 annual rate in the second quarter. Richard Ramsden of Goldman Sachs said it will do so in the third quarter.

That said, capital guidelines may not take shape until year-end. Leaders of the G20 group of rich nations this week urged members to stick to a promise to develop global capital and liquidity standards by the end of 2010.

Dimon also pointed to tax proposals that could affect capital needs. The Obama administration proposed this year to tax big banks to defray the cost of bank bailouts.

"We hope there will be more clarity regarding these issues soon," Dimon said. To top of page

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