Markets
COF

Capital One Slashes Dividend by 75%

Capital One Financial (NYSE: COF) reduced its dividend by 75% for the third quarter to $0.10 per share from $0.40 per share.

It is the first dividend reduction for the bank since 2009.

The dividend reduction follows two straight quarters of net losses for Capital One. In the second quarter, the bank -- which, with 421.3 billion in assets, is the 11th-largest in the U.S. -- reported a net loss of $918 million.

Three wooden blocks -- one marked with a green up arrow, the second marked with a percent sign, and the third marked with a red down arrow -- rest in a row on top of a dollar bill.

Image source: Getty Images.

The loss was mainly caused by a $4.2 billion provision for credit losses, including a $2.7 billion reserve build due to the pandemic-related economic downturn. The reserve build consists of $1.7 billion for potential losses from its credit card business, $668 million for auto loan losses, and $330 million for commercial loan losses.

The dividend reduction is in line with the Federal Reserve Board's income test it imposed as part of its Comprehensive Capital and Analysis Review (CCAR) for banks in the third quarter. The Fed said common stock dividends can't exceed an amount equal to the average of the firm's net income for the four preceding calendar quarters.

CFO Scott Blackley said on the second-quarter call that the reduction, which is subject to board approval, was fully expected based on the Fed's requirement. Blackley was unsure whether the same requirement would be in place for the fourth quarter.

"We don't know how that income limitation test is going to work if they're going to continue it on. You know that they've instituted a fall stress test for all of the 33 banks in CCAR. So I'm not going to give a guide on where the dividend is going to be next quarter. We're committed to continuing to have a dividend," Blackley said on the earnings call.

The stock price is down 38.5% for the year as of the market close on July 31. 

10 stocks we like better than Capital One Financial
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Capital One Financial wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of June 2, 2020

 

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

COF

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More