Source: Wikimedia Commons

Capital One Financial Corporation (NYSE:COF) is an interesting bet on high consumer spending for investors who want to get exposure to the cyclical financial sector. Capital One is a successful consumer and commercial banking franchise with a strong market position in credit cards, auto loans and home loans.

Capital One has a convincing track record in growing its core business segments which led the market to assign a premium valuation to the thirteenth largest domestic bank in terms of total assets (according to information provided by the Federal Reserve).

With cyclical tailwinds stemming from higher consumer spending, Capital One's credit card, home equity and auto loan segments should experience significantly higher demand which also should translate into higher share prices.

Resilient business and dependable profitability
Capital One's resilience has been proven over and over. Though the financial crisis did have a material impact on Capital One's financial performance in 2008 and 2009, and there were no banks that escaped the financial crisis totally unharmed, the company has bounced back quickly.

Capital One's profitability record is worthy of respect. Not only did the consumer bank avoid losses at the height of the financial crisis in 2008 and 2009, but the bank already exceeded 2006 profitability levels as early as 2010.

Source: Capital One Financial 2014 Annual Stockholder Meeting Presentation, May 1, 2014

Core business driving shareholder value
Capital One has a strong market position in credit cards and auto loans. In 2013, the company had an 8% market share in auto finance originations only behind Wells Fargo and Ally Financial.

The bank certainly plays among the largest originators in the country and its earnings should receive material tailwinds as the U.S. economy grows more robustly and consumer spending continues to improve.

The market certainly appreciates both Capital One's market position in credit cards, home loan and auto finance and its solid earnings history. This is also the reason why the company trades at one of the highest price to book ratios -- 1.6x -- in the market. Quality does indeed have its price.

In fact, Capital One currently quotes close to its 52-week High of $83.89.

Strong capital base
No doubt, Capital One is among the best capitalized banks in the financial sector. Its Tier 1 common capital ratio stood at 12.2% in 2013 and has been steadily increasing over last four years.

As an immediate result of Capital One's balance sheet strength, the bank is going to press forward with its capital deployment plan in order to funnel back substantial amounts of cash to shareholders in the form of dividends and share buybacks.

Attractive remuneration plan
In the first quarter of 2014, Capital One announced, that the Federal Reserve did not object to its shareholder remuneration plan. The monetary authority has run a complex set of scenarios as part of a comprehensive stress text exercise in order to determine how individual banks would cope with a shock in the financial sector.

Passing the stress test was therefore a crucial milestone in getting its capital deployment plan approved.

Capital One now expects to maintain its current dividend payout of $0.30 per share while at the same time expects to supplement its cash dividends by share buybacks in the amount of $2.5 billion until the end of the first quarter in 2015. At a current market capitalization of approximately $47 billion, Capital One could reduce its share count by around 5%.

The ultimate impact of Capital One's share buybacks will certainly be subject to the exact timing of such repurchases (which I assume will be opportunistic), but the buyback program does have a respectable size and should prove to be supportive for Capital One's share price over the next year.

The Foolish Bottom Line
Capital One offers investors the chance to participate in cyclically improving earnings growth in Capital One's core markets credit cards, auto and mortgages.

With a strong earnings history, a healthy balance sheet and a focus on shareholder remuneration, Capital One is a Buy despite its premium valuation.