Capital One Financial (COF) is a diversified business with a durable competitive advantage over its rivals. It enjoys an outstanding management and corporate culture, notes dividend reinvestment expert Vita Nelson, editor of DirectInvesting.
The bank operates in three primary business segments: Credit Card, Consumer Banking and Commercial Banking. It is a member of the Fortune 500, and also conducts business in Canada and the United Kingdom.
The firm is considered to be a diversified business with a durable competitive advantage over its rivals. It enjoys an outstanding management and corporate culture.
According to Yahoo! Finance, consensus estimates call for it to earn about $9.83 per share this year, up from $7.25 per share last year, and to go to about $10.79 per share next year.
It has paid dividends to investors since 1995 and has increased its payments for five consecutive years. During the past three years, it has increased its dividends at an average rate of 11.1%, with its quarterly payment of $0.40 per share currently providing a yield of 1.67%. We believe COF to be a solid company and an appropriate candidate for long term accumulation.
The value of dividends reinvestment: A hypothetical investment in Capital One Financial Corporation has grown cumulatively (including dividends reinvested) 2,238.05% since 1994. The same investment has grown only 1,754.62% during the same period of time, excluding dividends.
During the same period, a hypothetical investment in the S&P 500 index has grown cumulatively (including dividends reinvested) 788.68%.
COF still has room for significant dividend growth in the coming years, since the company’s current dividend payout ratio (DPR is the proportion of earnings paid out as dividends to shareholders) is just 43%. Its average DPR during the past five years is 25%.
Its price to sales ratio, a measure of valuation, of 1.69 is 20.6% below the S&P 500 index, its price to book ratio of 0.94 is 69.5% below the index, and its price to cash flow ratio of 3.25 is 76.4% below the index.
According to Morningstar, the stock is trading 21% below its fair value estimate, making it attractive for investors with a long-term investment horizon.
COF’s dividend reinvestment plan charges no fees for cash investing, dividend reinvestment, safekeeping or termination of the plan. With the stock being fundamental and technically attractive, this may be an entry point for investors with a longer-term investment horizon.
Vita Nelson is editor of DirectInvesting.
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