Why You Might Be Interested In Capital One Financial Corporation (NYSE:COF) For Its Upcoming Dividend

By
Simply Wall St
Published
November 07, 2021
NYSE:COF
Source: Shutterstock

Capital One Financial Corporation (NYSE:COF) stock is about to trade ex-dividend in three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Capital One Financial's shares on or after the 12th of November, you won't be eligible to receive the dividend, when it is paid on the 26th of November.

The company's next dividend payment will be US$0.60 per share. Last year, in total, the company distributed US$2.40 to shareholders. Based on the last year's worth of payments, Capital One Financial has a trailing yield of 1.5% on the current stock price of $154.87. If you buy this business for its dividend, you should have an idea of whether Capital One Financial's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Capital One Financial

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Capital One Financial is paying out just 5.6% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NYSE:COF Historic Dividend November 8th 2021

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Capital One Financial's earnings have been skyrocketing, up 32% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Capital One Financial has delivered an average of 28% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Should investors buy Capital One Financial for the upcoming dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. We think this is a pretty attractive combination, and would be interested in investigating Capital One Financial more closely.

While it's tempting to invest in Capital One Financial for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 2 warning signs for Capital One Financial (1 shouldn't be ignored) you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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