Capital One’s Conservative 2019 Capital Plan Hints At More Acquisitions To Come In The Near Future

Capital One (NYSE:COF) announced its decision to return $2.9 billion to its shareholders over the next twelve months as part of its latest capital return plan recently. While share repurchases are set to jump 83% compared to the previous year, quarterly dividends would remain at the same level of 40 cents per share. Trefis has analyzed the trends in Capital One’s dividend payouts and share repurchases over the last 5 years and has summarized expectations for the next three. You can modify Trefis forecasts to see the impact any changes would have on the Capital One share repurchase and dividends using our Interactive Dashboard. Additionally, your can see more Trefis data for financial services companies here.

Capital One’s 2019 Capital Return Plan

• Under the new plan, Capital One will repurchase $2.2 billion worth of its common shares over the next twelve months – which is 83% more than $1.2 billion announced in 2018.
• The bank will keep its quarterly dividends at the current level – i.e. 40 cents per share over Q3 2019 – Q2 2020. This works out to total dividends of $750 million assuming average outstanding shares of 470 million.
• Taken together, this represents a shareholder payout of $2.9 billion over the next twelve month.

The chart below details Capital One’s total shareholder payouts for each year since 2013, and includes our forecast for the next three years.

Historical Payouts

• Before the 2008 recession, Capital One paid generous dividends to its common stockholders. However, the economic downturn forced the bank to slash dividends to less than $127 million a year over 2009 to 2012 – having to wait for four years before it could begin distributing any meaningful amount of cash to investors.
• Quarterly dividends recovered in Q2 2013 from 5-cents to 30-cents per share, before further improving to 40 cents per share in Q2 2015.
• Since then, quarterly dividends have remained at the same level of 40 cents per share for 17 consecutive quarters and are expected to remain at the same level over Q3 2019 – Q2 2020.
• Over the last ten years, Capital One has returned $15.7 billion in cash to common shareholders, an average of $1.6 billion a year – representing about 48% of its average retained earnings of $3.3 billion for this period.
• Capital One’s total payout ratio over recent years has been well below the average figure for the largest U.S. banks – who have often returned well over 100% of their earnings to shareholders. In our opinion, a key factor behind this difference is Capital One’s focus on inorganic growth through a series of big-ticket and strategic acquisitions. The conservative capital return plan allows the bank to have sufficient cash on hand for potential acquisitions in the near term.
• Capital One has acquired several e-commerce and payments companies over recent years, including BlueTarp, Jewel Commerce, Wikibuy, Confyrm and Notch. And we expect the bank to step-up its acquisition efforts over coming months.
• Notably, the bank has paid $4.9 billion in dividend and $10.7 billion in share buybacks over the last decade.
• The bank, hence, has preferred share repurchase to dividends as the main method to return cash to the shareholders.

What To Expect In 2019

• We expect total dividends to be around $770 million, as the annual dividend per share will increase to $1.64 from $1.58 in 2018.
• Capital One has repurchased $1.2 billion worth of common stock by Q4 2018 (100% of the share buyback approved in 2018 capital return plan). Hence, total share repurchases is expected to be around $1.1 billion in 2019 (half of the total proposed repurchases of $2.2 billion).
• The total payout for the year is, therefore, likely to be over $1.9 billion – which is 35% of our forecast for the bank’s net income of $5.4 billion and 5% below the total payout in 2018.

We factor in these payouts in our analysis of Capital One in the form of an adjusted dividend payout rate (which is the total payout ratio), shown in the chart below.

Do not agree with our forecast? Create your own forecast for Capital One by changing the base inputs (blue dots) on our interactive dashboard.

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