Stock of the Day
|
Capital One Financial (COF)
Capital One Slashes Dividend
Capital One announced on Monday that it will slash its quarterly dividend by 87% as a cost-cutting procedure. This cut will be implemented in the second-quarter of 2009 and will reduce the company's dividend to 5 cents a share from 37.5 cents. The company said that this cut will save around $500 million annually. Capital One has simply been added to the growing list of companies that have decided to cut quarterly dividends as each tries to conserve capital during this prolonged economic downturn. What was the motivating factor that led the company to this decision? Will this cut be enough to help the company weather the remainder of this financial storm?
|
| Daily Chart |
If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here
|
| Stock Analysis |
The news from Capital One did not come as a big shocker. Actually, a number of analysts were expecting the annoucement after JP Morgan Chase (JPM: Charts, News, Offers) and Wells Fargo (WFC: Charts, News, Offers) reported the same course of action over the last few weeks. Financial institutions have been some of the hardest hit companies during this global economic crisis. As these companies watch competitors and similar institutions crumble around them, they are pulling out all the stops to ensure that they do not meet the same fate. One of the main factors contributing to the company's decision was an increase in the amount of credit card losses. With job losses skyrocketing and consumers' income being reduced, the amount of delinquent accounts is surging at the company. During these tough times, consumers are either maxing out credit cards to pay for basic necessities or not paying on debt so that they can pay for housing, food, etc. The company knew that this would be an issue, but they did not think that it would take this long for the economy to rebound and consumers to get back on their feet.
|
Capital One knows that the end of this financial crisis remains to be seen, so they are trying their best to mitigate future losses with this cut. Back in January, the company reported a disappointing quarterly loss and recently said that the number of charge-offs has risen to 8.29 percent. The company is hopeful that this reduction in its quarterly dividend will help balance out this increase in losses. Many would argue that the company is being overly optimistic about the impact that this cut will really have. As more individuals lose their jobs and become unable to meet their monthly obligations, the losses absorbed by the company will definitely increase.
|
Some investors are worried that the company may eliminate dividend payments all together in the near future. Capital One was one of the many companies that asked the government for a loan under TARP. The Mclean, VA based company received $3.6 billion under TARP. A number of TARP recipients are looking at eliminating dividends, so that they can pay back TARP funds quicker. Capital One did say that the funds retained from the cut to its quarterly dividend will allow them to repay the government back sooner, so investors may want to rethink the possibility of a total elimination of dividend payments by the company.
|
All things considered, the future impact of this quarterly dividend cut is still unclear. Only time will tell if this cut will be enough to help the company steer through the rough seas ahead. This cut will definitely help the company retain some capital, but who knows how long the company will be able to keep it during these uncertain times.
|
Profile |
Click here to view a detailed profile of Capital One Financial.
|
|
|
|
|
