JP Morgan Chase & Co. (NYSE:JPM) was a new position for Tepper last quarter, and the bank stock currently pays a 3% dividend yield. Following a decline in net revenues of 5% in 2011, JP Morgan expects to see growth of 0.5% by the end of this year. Obviously, JP Morgan is feeling the pressure of the present low-rate environment, with projected net interest income to fall 7% in 2012 and fall again by 2% in 2013. Even with net interest income being pressured, JP Morgan is still one of the best-in-industry bank stocks with loan growth expected to be 1% and interest earnings asset growth of 1.8%. The bank also has an improving loan portfolio with charge-offs expected to down from $12.2 billion in 2012 to $10 billion in 2013. JP Morgan also managed to receive recent approval to reinstate its $15 billion share repurchase program. In terms of valuation, JP Morgan is near the low end of the industry at 0.8 times its book value, making it a decent value play, notwithstanding the fiscal cliff.
Two Harbors Investment Corp (NYSE:TWO) pays the highest yield of our five dividend stocks at 12.3%. The REIT is Tepper’s 23rd largest 13F holding. During the third quarter, Two Harbors managed to increase its book value by 15% from 2Q. As one of the top REITs investing in residential mortgage backed securities, Two Harbors does trade at the upper end of the industry with a 15x P/E and 1.4x P/B. We believe, however, that the company still has solid growth prospects moving forward, having recently completed a public offering for almost $600 million to pursue further acquisitions.
To recap: the chemical company Huntsman offers solid value and has a diversified product that is used in a variety of industries, offering some production from economic uncertainty. Sealed Air has seen weakness in Europe, but we believe the food safety company will make up the difference with increased demand in the U.S., and Macy’s has shown the ability to perform well despite economic uncertainty. We see JP Morgan as a best-in-industry bank that pays one of the highest and more stable dividends, while Two Harbors offers investors an outsized dividend, but it might be too speculative for some.