Please ensure Javascript is enabled for purposes of website accessibility

Capital One Plans to Restore Normal Dividend

By Bram Berkowitz - Jan 27, 2021 at 6:13PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The bank had to cut its dividend by 75% last year due to the Federal Reserve's cap on dividend payouts for banks.

Pending board approval, Capital One (COF 0.33%) expects to return to its normal quarterly dividend of $0.40 per common share in the first quarter, management announced during the company's recent earnings call.

The news ultimately sent Capital One shares 2.8% higher on Wednesday during an extremely difficult day for the overall market.

In July of last year, Capital One announced that it would cut its dividend by 75% to $0.10 per share, the company's first dividend cut since 2009.

Capital One Cafe.

Image source: Capital One Social Responsibility Report

The news came after two straight quarters of losses in the early stages of the coronavirus pandemic, after the bank built capital reserves significantly to prepare for potential loan losses.

The main reason Capital One had to cut the dividend, however, was because of restrictions put in place by regulators. As a bank, Capital One is regulated by the Federal Reserve.

Because of the pandemic, the Fed restricted large banks from paying dividends that exceeded the average net income of a company's four preceding calendar quarters. At the time, Capital One CFO Scott Blackley specifically attributed the dividend cut to the Fed's requirement.

The Fed's requirement is still in place through the first quarter of 2021, but after earning close to $5 billion in the last two quarters of 2020, Capital One is now positioned to pay its normal dividend.

The company also announced on its earnings call that it plans to repurchase up to $7.5 billion worth of shares.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Capital One Financial Corporation Stock Quote
Capital One Financial Corporation
COF
$113.70 (0.33%) $0.37

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.