Both Citigroup and UBS recently initiated coverage of the shares of this financial behemoth with a ‘Buy’ rating.
Capital One Financial Corporation (COF)
From DirectInvesting.com
Capital One Financial Corporation (COF) was founded in 1994 in Richmond, Virginia. The Company and its subsidiaries offer a range of financial products and services to consumers, small businesses, and commercial clients through branches, the Internet, and other distribution channels.
Capital One Financial 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. Its current total market capitalization of $46.6 billion makes COF a large cap stock (a large-cap stock has a market value of more than $10 billion).
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 5 consecutive years. During the past three years, it has increased its dividends at an average rate of 11.1% and has a quarterly payment of $0.40 per share. We believe COF to be a solid company and an appropriate candidate for long term accumulation.
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 (thru the Vanguard 500 Index Fund (VFINX) 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 (P/Sales) (a measure of valuation) of 1.69 is 20.6% below the S&P 500® index, its Price to Book ratio (P/Book) of 0.94 is 69.5% below the index, and its Price to Cash Flow ratio (P/Cash Flow) 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.
Technically (from the chart’s perspective) COF also looks attractive, trading 10% below its 52 weeks high, while it is forming a price consolidation pattern between $89 and $106.5 approximately, in which $89 is acting as a technical support level. The actively managed no-load mutual funds Dodge & Cox Stock (DODGX) and Oakmark I (OAKMX) are major shareholders of COF, holding 5.52% and 1.04% of its shares respectively. COF’s main competitors are American Express Co. (AXP) and Discover Financial Services (DFS).
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, www.directinvesting.com, 914-925-0022, April 2, 2018