Capital One Financial Corporation (COF) provides a broad spectrum of financial products and services to consumers, small businesses, and commercial clients, including credit cards, checking and savings accounts, auto loans, and business products and services.
The company generated three-quarters of its revenue from interest income during the third quarter of 2020. Interest income came primarily from credit cards (59%), consumer banking (23%), and commercial banking (9%). The remaining quarter of revenue came from non-interest income, including interchange fees, investment income, and service charges.
Delinquencies Fail to Materialize
The COVID-19 pandemic has sparked massive job losses, but credit card delinquencies have remained steady. Capital One’s charge-offs fell from 3.11% in October to 2.42% in December while delinquencies have averaged 2.3% over the past three months. Fiscal stimulus, including PPP loans and direct payments, have likely helped consumers remain solvent.
Odeon Capital believes that the company will benefit from contracting loan loss reserves, increasing revenue, and lower operating costs. At the same time, the analyst noted that the bank would reset its annual dividend at $1.60 per share and resume a vigorous $7.5 billion share buyback program in the near term amid the strength in financials.
The company raised its quarterly dividend by 300% to $0.40 per share, which represents a 1.43% forward yield. The dividend is payable on March 1, 2021 to shareholders on record as of February 17, 2021.
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