Payday Loans Are Catching the Eye of Regulators: Will These Stocks Benefit?

Goeasy Ltd. (TSX:GSY) and other companies offer alternatives to payday loans, which appear to be contributing to higher insolvency rates.

| More on:

Hoyes Michalos & Associates, a Toronto-based insolvency trustee firm, released a report stating that 31% of insolvent borrowers used payday loans in 2017, up from 27% of insolvent borrowers who used the service in 2016.

The Province of Ontario capped interest rates payday loans effective January 1. Public policy think-tank Cardus Work & Economics was critical of the move, as it doesn’t borrowers any viable alternatives. Cardus did praise the province for allowing credit unions to act as an alternative to payday loan shops.

Rising interest rates have started to crunch the budgets of many Canadians, especially as the country struggles with record household and consumer debt. A report from the Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) showed that a portion of consumers have been paying down debt during the rate tightening period. However, the rise of alternatives in recent years could prove beneficial to those on the hunt for entities that offer far better interest rates than do predatory cash stores. This could be doubly helpful to younger tech-savvy consumers as fintech companies begin to offer these essential financial services.

Goeasy Ltd. (TSX:GSY) is a Mississauga-based company that provides goods and alternative financial services in the form of unsecured installment loans. Goeasy offers these services to consumers who often possess poorer-than-average credit and are unable to buy expensive appliances outright. The stock is down 4.3% in 2018 as of close on February 15, but shares have climbed over 230% over a five-year period.

Goeasy is set to release its 2017 fourth quarter and full-year results on February 21. In the third quarter, Goeasy saw a 55.9% increase in loan originations to $157.6 million. The loan book experienced 172.7% growth compared to Q3 2016. Revenue rose 32.4% to $69.7 million, and the company reported net customer growth of 9,095 – a 337% increase from Q3 2016. Goeasy also saw cash generated from easyfinancial customer payments rise to $118.3 million in comparison to $89 million in Q3 2016.

The company also delivered a dividend of $0.18 per share, representing a 2% dividend yield. Goeasy is an attractive long-term hold that stands to benefit from consumers who may turn away from payday loan shops in the future, given that it offers a viable and cheaper alternative.

Mogo Finance Technology Inc. (TSX:MOGO) is a Vancouver-based fintech company that offers personal loans, identify fraud protection, and other services to its online customers. Shares of Mogo Finance have plummeted 23.3% in 2018. In early January, Mogo announced that it would lease bitcoin machines and launch Mogo Blockchain Technology.

Peer-to-peer lenders like Mogo tend to be more expensive than bank loans, but are still a far better value than payday loans. The rates are often unique to the lender, and in the case of Mogo, your rate is determined by your credit score; the better it is, the lower the rate. Mogo also offers credit score viewing, which may help consumers better manage their credit going forward.

In the 2017 third quarter, Mogo saw revenue rise 10% year over year to $12.6 million and gross profit margin increase to 68% of total revenue. Gross loans receivable grew to $74.7 million compared to $69.6 million at the end of the second quarter. Mogo is set to release its fourth quarter and full-year results in early March. The company expects to reach 800,000 to 1 million members by the end of 2018.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan owns shares of Mogo Finance Technology Inc.

More on Dividend Stocks

Income and growth financial chart
Dividend Stocks

This Canadian Retail Stock Yields 3.8% and Keeps Expanding

A growing dividend, rising share price, and big strategic moves make this top Canadian retail stock worth owning for the…

Read more »

Forklift in a warehouse
Dividend Stocks

It’s Possible! Build a $250,000 TFSA Using Just 2 Dividend Stocks

Want a $250,000 TFSA that pays out monthly? These two solid REITs pay monthly distributions.

Read more »

Two senior friends playing beat tennis on sand tennis court
Dividend Stocks

2 Canadian Stocks to Buy and Hold for a Lifetime

These Canadian stocks have the strength to reward patient investors for decades – no matter what the market brings.

Read more »

resting in a hammock with eyes closed
Dividend Stocks

1 Canadian Utility Stock That’s My Ultimate Sleep-Well-At-Night Pick

Its defensive business and predictable earnings position it to deliver steady, long-term returns, helping you sleep well at night.

Read more »

A worker uses a laptop inside a restaurant.
Dividend Stocks

Dream of Owning a Restaurant? These 2 Food Stocks Are a Far Savvier Investment

Kitchen nightmares exist for a reason. These TSX restaurant royalties are better picks.

Read more »

coins jump into piggy bank
Dividend Stocks

This Monthly Income Fund Pays You $0.10 Per Share Just to Hold It

EIT.UN has maintained its steady distribution streak for over a decade now.

Read more »

cloud computing
Dividend Stocks

A $25,000 Blueprint to Building a TFSA Filled With Cash

Here's how to build your TFSA with a smart combination of high-yield companies with strong fundamentals.

Read more »

A doctor takes a patient's blood pressure in a clinical office.
Dividend Stocks

7% Monthly Income! This Dividend Stock Is Recession-Proof

A cheap, defensive dividend stock that's once again ready to benefit from strong healthcare industry fundamentals.

Read more »