Another Reason to Love This Big Bank Stock

Key Takeaways:

• We have a love-hate relationship with big banks, given their refusal to “return cash” to everyday account holders. 
• That said, we generally love their stocks, but not only because they “return cash” to shareholders. 
• There’s a big difference between banks such as JPMorgan Chase and the fintech companies posing as disruptors. 

Last month, we made the love-hate case for big banks. 

Love because they’re rolling in net interest income dough thanks to rising interest rates. Hate because they refuse to hike savings account rates to more than a couple tenths of a percent.  

But the bullish big bank narrative goes beyond interest rates. 

Disruption Doesn’t Always Require Disruptors 

When Uber (UBER) – see The Juice’s bullish thoughts on the stock here – disrupted the taxi industry, it was taking aim at a stagnant and relatively unhealthy space. 

It wasn’t as if taxi companies had the vision, let alone  wherewithal, to take things digital. There was no innovation happening, so Uber stepped in. 

Same for Amazon.com (AMZN) when it punked bookstores, then brick-and-mortar retail across the board. The companies Amazon hurt were asleep at the wheel, in financial trouble, or both. 

We can keep going. 

Apple (AAPL) trounced BlackBerry (BB) because the latter didn’t understand apps. 

Alphabet (GOOG, GOOGL) encroached on Microsoft (MSFT)’s territory because, under former CEO Steve Ballmer, Microsoft failed to innovate. Google Docs came along in 2006 and introduced incredible features MS Word didn’t have, such as in-document collaborative editing we take for granted today. 

JPMorgan Chase Doesn’t Have Either Problem

While taxis, bookstores, brick-and-mortar retail, BlackBerry, and Microsoft had one or both of these problems, the second-most searched big bank stock in The Juice’s proprietary Trackstar database has neither. 

JPMorgan Chase (JPM) can and is innovating. Plus, it’s flush with cash. 

CEO Jamie Dimon says the company is spending more than $12 billion annually on technology. 

The fintech companies attempting to disrupt the banking industry with every personal financial offering under the sun can’t compare. 

As an investor, you’re doing little more than speculating with stocks such as  SoFi Technologies (SOFI) and Rocket Companies (RKT). They don’t operate from positions of financial strength. And they’re looking to disrupt spaces that aren’t necessarily ripe for disruption. 

So why buy them? Stick with Uber or even Airbnb (ABNB) – true innovators with formidable disruptive growth stories. These are high-risk/high-reward speculative plays. 

Which brings us back to rent.

JPM is investing some of its cash into a full-service platform for landlords. 

Source: JPMorgan 

Roughly 78% of the nation’s 12 million small landlords still collect rent via paper check or money order. JPMorgan’s platform not only facilitates rent collection, it helps property owners screen tenants, do market research, and create leases, among other services. 

A space in serious need of disruption that doesn’t necessarily require a Silicon Valley disruptor.

The Bottom Line: We’re not sure if SOFI or RKT plans to mediate the landlord-renter relationship. Our larger point is that it probably won’t matter much if and when they do. 

JPMorgan isn’t Barnes & Noble, BlackBerry, or Microsoft. 

The bank has about $1.5 trillion in cash on hand and it’s using it to innovate. So it understands and is ready to fight back against threats to its core businesses (the areas the SOFIs and Rockets of the world are already going after). Plus, it’s expanding from its core, entering areas where it can basically disrupt itself. 

Paper checks are going away because most people only use them to pay rent? Great, we’ll develop a solution there, leveraging the relationships we already have with landlords and tenants as small businesses and consumers. 

And while JPMorgan doesn’t return cash to consumers via savings account interest, it returns cash to shareholders with an impressive dividend. JPM pays a $4.00 annual dividend that it has increased for the last 10 years. And, with a solid payout ratio of 31%, it has the ability to keep paying and raising its dividend.

In future editions of The Juice, we’ll look deeper at JPM and other big banks to see how else they’re innovating. We’ll also look to spaces in need of disruption where the established players, unlike big banks, aren’t getting the job done.

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