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Capital One Plans to Restore Normal Dividend

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

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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.

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