This morning, credit-card giant Capital One (COF) announced that it is cutting its quarterly dividend by a whopping 87% to 5 cents a share.
According to the press release, this move will save the company $500 million annually, “equivalent to approximately 25 basis points of the company's Tangible Common Equity to Tangible Managed Assets, or TCE, ratio.” After trading down at the opening, Capital One (COF) is now catching a bid, rising about 16% versus a 4% gain for the financials overall.
This was a very wise move by Capital One, though not a complete surprise. A 10%+ dividend yield is unnecessary for a financial stock, especially when so many big names have already cut theirs.
But would I buy the stock? No way. Unemployment and the savings rate are both rising, which is a big negative for a company dependent upon consumers being both 1) willing to borrow lots of money for discretionary items and 2) able to pay it back.
The financials are still awfully tricky, and I’ve taken quite a beating on my long position in Raymond James Financial (RJF). I’m convinced that stock can easily triple from here in a more stable market (wishful thinking) due to massive share gains in wealth management and the independent advisor business.
Another name I’m starting to like a lot is optionsXpress Holdings (OXPS), which is dirt-cheap and a likely takeover candidate given ongoing industry consolidation in the options business. TD Ameritrade (AMTD) is buying the object of my affection, fellow options specialist thinkorswim (SWIM), and OXPS will be acquired sooner or later.
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