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Capital One Increases Its Dividend Back to Pre-COVID Levels

By Dave Kovaleski - Updated Feb 5, 2021 at 4:25PM

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The bank also approved a $7.5 billion stock buyback.

Bank and credit card company Capital One Financial (COF 0.33%) has raised its quarterly dividend 300% to $0.40 per share for the first quarter, payable March 1.

The increase, announced yesterday, bumps the dividend back to where it was before the pandemic hit. Capital One lowered the quarterly dividend to $0.10 for the second and third quarters of 2020 as the company was saddled with net losses in the first and second quarters. The losses were the result of lower consumer spending and a high provision to cover anticipated credit losses.

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But Capital One returned to positive territory in the third quarter as spending picked up and the provision for credit losses fell from $4.2 billion in the second quarter to $331 million.

In the fourth quarter, the bank saw net income of $2.6 billion, or $5.35 per share, up from $2.4 billion in the third quarter and $1.2 billion in the fourth quarter of 2019. The gains were partly driven by year-over-year increases in credit card and auto loans. The efficiency ratio dropped to 54.64% from 56.03% a year ago, with a lower number representing an improvement.

The improved financials led to a common equity tier 1 (CET1) ratio of 13.7% at the end of the fourth quarter -- 70 basis points higher (and better) than the third quarter, and 150 basis points higher than the fourth quarter of 2019.

CEO Rich Fairbank said on the Jan. 26 earnings call:

We continue to estimate that our CET1 capital need is around 11%, which includes a buffer over our capital requirements under the [stress capital buffer] framework of 10.1%. As we close out 2020, we have approximately 270 basis points, or around $8 billion of capital, in excess of our CET1 target. Following the latest stress-test results released by the Federal Reserve last month, and in light of the strong capital position I just described, we expect to restore our quarterly dividend back to $0.40 per share in the first quarter, pending board approval. 

Fairbank also that the board authorized a stock repurchase of up to $7.5 billion, and approximately $500 million in the first quarter, based on the Fed's average earnings rule.

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