Last update on 2024-06-27

Capital One Financial (COF) - Dividend Analysis (Final Score: 5/8)

In-depth analysis of Capital One Financial (COF) dividend policy using an 8-criteria scoring system. Assess dividend performance, stability, payout ratios, and more.

Short Analysis - Dividend Score: 5

We're running Capital One Financial (COF) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Capital One Financial (COF) has a moderate overall score of 5 out of 8 in evaluating its dividend policy. While COF offers a lower than industry average dividend yield of 1.8304%, it reflects their potential focus on reinvestment and growth. The Dividend Growth Rate is inconsistent over the past 20 years, with periods of high volatility and several years of no growth or even negative growth. The average payout ratio is generally low and below 65%, demonstrating solid financial health, although it has shown considerable variability. COF's dividends are usually well-covered by both earnings and cash flow, indicating payouts are secure. Dividends have also been stable and regularly paid since 1998, showing a long-standing commitment to returning value to shareholders. Additionally, consistent stock buybacks have been observed, particularly strong since 2014, enhancing shareholder value further. Stability and reliability in paying dividends enhance their attractiveness to investors looking for steady income.

Insights for Value Investors Seeking Stable Income

If you are a dividend-focused investor, COF’s lower yield and inconsistent growth rate over the years might be less appealing. However, the strong history of stable dividends and robust stock repurchase trends indicate a potentially reliable source of returns and value growth over time. Investing should still be done cautiously, observing the economic conditions and COF’s earnings sustainability in the future. If you're seeking a balanced approach combining dividends and growth potential, COF could be a suitable option to consider.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield represents the ratio of annual dividends to the stock price, indicating the return on investment from dividends alone.

Currently, COF has a dividend yield of 1.8304%, which is lower than the industry average of 2.43%. Historically, COF's yield has shown significant fluctuations, reaching a peak of 4.7037% in 2008 during the Global Financial Crisis. In recent years, COF's yield has remained relatively stable but consistently lower than the industry average. With a closing stock price of $131.12 in 2023 and a dividend per share of $2.4, the yield reflects moderate returns. This lower yield indicates that COF may prioritize reinvestment or growth over dividends, which isn't necessarily bad, but may be less attractive to dividend-focused investors.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate is important as it measures the annualized percentage growth rate of a company's dividend payments. Investors prefer a consistent and high dividend growth rate as it potentially indicates increasing profitability and shareholder value over time.

Looking at the dividend growth rate for Capital One Financial (COF) over the last 20 years, the average dividend ratio stands at 80.41%. This average is significantly influenced by extreme values such as 1,288.89% in 2008 and -65% in 2009, indicating high volatility in dividend payouts. In thirteen of the twenty years examined, COF offered no dividend growth or negative growth, indicating inconsistency. Although isolated high growth years raise the average, such volatility generally does not inspire investor confidence. Therefore, while the average seems promising, the erratic trend and frequent absences of dividend payments suggest that the Dividend Growth Rate criterion might not favor COF positively.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio indicates the proportion of earnings a company distributes to its shareholders as dividends. A ratio below 65% is excellent as it indicates ample room for flexibilities like reinvestment, debt repayment, or dividend growth, demonstrating strong financial health.

For Capital One Financial (COF), the payout ratio has fluctuated considerably over the past 20 years. The years 2008 and 2009 are notably unconventional with payout ratios of -1231.5271% and 27.0229%, respectively, due to financial crisis implications. Excluding these outliers, the payout ratio remains well below 65%, with an average of -46.30%. Generally, this is a positive sign indicating that COF has retained sufficient earnings to reinvest in business growth and navigate economic downturns, but the high volatility suggests inconsistency in earnings. Overall, COF demonstrates good dividend sustainability, but investors should be aware of past volatility spikes.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

The Earnings per Share (EPS) of Capital One Financial (COF) from 2003 to 2023 show significant fluctuations. For instance, the EPS dropped dramatically in 2008 to -0.1218 and peaked at 28 in 2021. In contrast, the Dividend per Share (DPS) has generally been more stable but showed notable increases, like from 0.95 in 2013 to 2.4 in 2022. The indicator Dividends per Share covered by EPS ranged from -12.3 to 0.27 before hitting an all-time high of 0.493 in 2017. Generally, a consistent and high coverage ratio (EPS/DPS) is a positive indicator, suggesting the company generates enough earnings to cover its dividend payments comfortably. While COF's coverage ratio improved significantly post-2015, periods of low coverage (e.g., 2008, 2020) highlight vulnerabilities. Despite recent improvements (e.g., a coverage of 0.187 in 2023), continued earnings volatility could pose risks to dividend stability.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow evaluates whether a company's dividend payouts are supported by its free cash flow. It is crucial to consider this because even if a company has high profits, if it lacks enough cash flow to cover dividends, it might face liquidity issues, endangering dividend sustainability.

Reviewing the given data on Capital One Financial's (COF) free cash flow versus dividend payout from 2003 to 2023, we notice considerable variability. For instance, in 2023, the dividend covered by cash flow is approximately 0.059, whereas, in 2008, it was much higher at 0.181. This ratio being consistently below 1 suggests dividends have always been well covered by free cash flow. Especially noteworthy are the years 2008, 2009, and 2021 with ratios above 0.1, indicating robust coverage during these years. This trend is favorable as it shows Capital One's commitment to maintaining a secure dividend payout strategy by ensuring dividends remain a small fraction of its free cash flow. However, the lower ratios in the recent years (below 0.1 from 2020 to 2023) compared to the peaks might raise slight concerns regarding the allocation strategy of the cash, but given the broad historical consistency, these variations are relatively minor and still show adequate coverage.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Capital One Financial (COF) and why it is important to consider

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is vital for income-seeking investors who need predictable returns.

Dividends Paid for Over 25 Years?

The criterion checks if Capital One Financial has consistently paid dividends for over 25 years. Long-term dividend payments exhibit the company's stability and shareholder commitment.

Capital One Financial has paid dividends consistently since 1998, starting with $0.1067 per share, reaching $2.4 per share in 2023. While there's a clear dip during the 2008 and 2009 financial crisis, the overall upward trajectory in dividends suggests financial durability and commitment to shareholders. Dividends grew significantly post-2013, reflecting the company's robust financial health post-crisis. This consistent dividend payment trend for over 25 years indicates a strong commitment to returning value to shareholders, which is a positive sign.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Capital One Financial (COF) and why it is important to consider

Stock repurchases, also known as buybacks, are when a company buys back its own shares from the marketplace. This is key for shareholders because it often boosts stock prices and earnings per share, and signifies management's confidence in the company's future. In the context of Capital One Financial (COF), we've seen a diverse trend in the number of shares from 2003 to 2023. Over this 20-year period, copious share repurchases are observable in 2008, and continuously from 2014 to 2023. The average annual buyback rate was approximately 2.9673%. Beginning with 234 million shares in 2003, the company's share count surged to its peak in 2013 with 587 million, before exhibiting a declining trend thereafter, concluding at 382 million shares in 2023. The trajectory denotes consistent and substantial share repurchases, ultimately reducing the number of shares and enhancing shareholder value. The reliable repurchase trend in recent years evidences a well-articulated capital allocation strategy. Capital One’s robust share repurchases over a substantial timeframe reflect its consistent ability to generate ample free cash flow, signaling good financial health. This trend is favorable; consistent buybacks reinforce shareholder trust and imbue a positive future outlook for the company. Overall, Capital One Financial's stock repurchase plans have undoubtedly bolstered shareholder equity through diversification of company owned shares and higher per-share metric results.