Few investors would argue that JPMorgan Chase(NYSE: JPM) isn't a solid company. After all, there's a reason it's the U.S.'s biggest bank, boasting nearly $3.6 trillion worth of assets. Credit the depth and breadth of its offerings, which range from consumer banking to wealth management to corporate fundraising, and more. It's got a lot of ways to generate profit-producing revenue. Look for continued dominance of its industry going forward too, driving the stock higher as a result.
But is JPMorgan the kind of pick that could set you up for life with near-guaranteed above-average gains? Keep reading.
JPMorgan Chase, up close and personal
You probably know the company better than you think. It's been around in a form we'd recognize today since the late 1800s, mostly focused on institutional banking for the better part of its existence. It wasn't until 2000 -- when it merged with Chase Bank -- that it wholly embraced the consumer as well as the corporate aspects of the banking business. Today, the $700 billion company employs over 300,000 people who collectively serve over 90 million different customers.
Sheer size doesn't guarantee future growth, though. Indeed, the bigger the organization gets, the more difficult it can be to find new ways to tack on even more size. For any company to be the basis for a life-changing investment, it must be able to firmly outpace the mere rising tide of inflation and population growth.
JPMorgan Chase just doesn't have that capability.
Speed bump ahead
Don't misunderstand. As was noted, it is a solid company, and an equally solid investment ... particularly if you're looking for dividend income. Although the fallout from 2008-09's subprime mortgage meltdown forced the bank to axe the bulk of its dividend payments at the time, its annual payout began growing again by 2011 and hasn't stopped since. It's a reasonably safe bet that the company (along with most of its peers) won't allow itself to be blindsided like that again.
Still, there are limits.
Although the big bank's bottom line is growing of late, and its dividend growth even seems to be accelerating, this growth has taken shape at an extraordinary time for the business. That is, a period in which rising interest rates and a recovering economy not only whipped up demand for lending and corporate fundraising, but made lending a highly profitable business to be in as well.
Just know that the underlying circumstances behind 2023's and 2024's banking booms are the exception, rather than the norm. More to the point, they're not sustainable. The U.S. Federal Reserve says it's likely done with its streak of rate hikes, in fact, with modest cuts expected for the coming couple of years. That should put the kibosh on lending's soaring profitability.
In the meantime, although Goldman Sachs -- and others -- believe this year should be a solid one for fee-bearing mergers and acquisitions, this too is a cyclical business that's actually been lackluster of late to the point of being disappointing. It wouldn't take much to produce a short burst of relative growth.
It's not clear what major deals might actually add real value for would-be suitors right now, just as it's not clear if there are any attractive IPO candidates that would meaningfully move the needle on JPMorgan Chase's investment banking business.
Not a fast-growing business anyway
Then there's the longer-term concern. That's the fact that the banking business just isn't a high-growth one.
Numbers from the Federal Deposit Insurance Corp. (FDIC) paint the ho-hum picture, indicating that the U.S. banking industry's net income has only grown an average of about 5% per year over the course of the past 30 years. That's in line with the revenue growth New York University's Stern School of Business expects in the coming five years, too. The school expects per-share profits to pace higher by about twice as quickly, but this outlook reflects the benefit of stock buybacks more than actual profit growth.
You can find more compelling growth prospects in other industries. This one's crimped by market saturation and a limited amount of money being printed to eventually become monetizable assets. Indeed, JPMorgan Chase's own asset base has only grown about 3% per year since 2014, when it had $2.6 trillion on its books, and inflation arguably did the bulk of the heavy lifting between then and now.
Be realistic with your expectations
Don't panic if you already own JPMorgan Chase stock. It isn't doomed. Indeed, as was noted, it's a fantastic dividend payer and dividend grower. You can still step into a stake while the forward-looking yield stands at 2%. That's not bad, especially considering its healthy track record of dividend growth.
If you're looking for an investment that could prove life-changing, however, this one isn't it.
It's still a great way to round out your portfolio with a financial name. It's not a bad speculative pick to capitalize on recoveries from economic swoons, either, since these headwinds often seem to disproportionately punish bank stocks. This ticker outright soared beginning in 2014 once the last of the subprime mortgage debacle was shaken off.
But will it "set you up for life" better than a different name might? Doubtful. If you're looking for more explosive, sustained gains, consider something with bigger (long-lived) growth prospects.
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JPMorgan Chase is an advertising partner of Motley Fool Money. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and JPMorgan Chase. The Motley Fool has a disclosure policy.
