A Great Dividend Stock That You Can Hold in Your TFSA for Decades

goeasy Ltd (TSX:GSY) is one of the top growth stocks on the TSX. In 2020, it will become a Canadian Dividend Aristocrat and is best held in your TFSA.

| More on:
IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT

Image source: Getty Images

Canadians have two primary types of investment accounts: registered and non-registered. Registered investment accounts are attractive because they often offer favourable tax implications.

The two most-popular are the Registered Retirement Savings Plan (RRSP) and the Tax Free Savings Account (TFSA). Each has their advantages and your selection which be based on your individual tax situation.

There are however, some more commonly used best-practices. For example, investors prefer to hold their U.S. dividend stocks in an RRSP because there is no withholding tax.

Similarly, high-growth stocks are best kept in the TFSA. Why? An RRSP is not tax free; it’s tax deferred, which means that you will pay tax on your income once you start withdrawing come retirement.

On the other hand, there are no tax implications in the TFSA. If a stock rises by 1,000%, you get to keep those gains and withdraw tax-free — an attractive proposition.

With this in mind, if you have a dividend growth strategy, it’s best to hold your high-growth stocks in your TFSA account. A good example of such a stock is goeasy (TSX:GSY).

Goeasy is a non-prime leasing and lending services financial company. It operates in two segments: easyhome and easyfinancial. The former is the company’s legacy business and provides stable and reliable cash flows that allow it to grow its easyfinancial business. Thus far, the results have been phenomenal.

Over the past five years, goeasy’s stock has jumped by 182%, which is equal to a 36% average annual growth rate. This ranks it as one of the best financial stocks on the Index.

Taking this a step further, the company was also ranked #14 on the inaugural TSX30 list, which tracks the 30 top performing TSX stocks over a three-year period.

Year to date, it has also been one of the best-performing stocks on the TSX Index, as its stock price has returned a whopping 71%!

The company’s meteoric rise is hardly surprising. The company had been trading at a pretty steep discount to its expected growth rates.

Over the past five years, the company has grown earnings by an average of 31.63% annually. Trading at an average P/E in the low teens, its stock price simply wasn’t keeping up with expectations.

Despite its run-up, however, the company is still cheap. Once again, analysts expect the company to post 30% average annual earnings growth, giving goeasy a P/E to growth (PEG) ratio of only 0.45 based on its current P/E of 13.68. This is a clear sign of undervaluation.

Not only is the company cheap, but it’s also on the verge of becoming a Canadian Dividend Aristocrat. Aristocrats are companies that have grown the dividend for at least five consecutive years.

Goeasy last raised its dividend by 37% this past March, marking its fifth year of dividend growth.

Once it officially becomes an Aristocrat in 2020, two things will happen: funds that track the Index will add goeasy’s stock to their holdings and the company will also start to show up on dividend-growth screens. This will increase the company’s profile and liquidity, both of which are positive catalysts for the company.

The company currently yield’s 1.91%, and has raised the dividend by at least 20% over its five-year streak. Given its growth rate, it won’t take long for investors yield on cost to shoot up north of 3%.

Foolish takeaway

Goeasy has a long runway ahead of it and is the perfect stock for your TFSA. With over 30% expected growth rates, a rising dividend and trading at cheap valuations, goeasy is a rare triple threat.

A triple threat is a stock that can fit any of the three stock types: income, growth and value. By holding your goeasy stock in your TFSA, you can watch your wealth grow tax free.

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 mlitalien owns shares of goeasy Ltd.

More on Dividend Stocks

Investor reading the newspaper
Dividend Stocks

10 Years From Now, These Are the Stocks You’ll Be Glad You Own

Sometimes investing is a waiting game. But in the case of these stocks, the wait could be well worth it.

Read more »

Dividend Stocks

This 6.3% Dividend Stock Pays Cash Every Month

Monthly pay dividend stocks like First National Financial (TSX:FN) pay cash every month.

Read more »

Dividend Stocks

3 Canadian Stocks You Can Confidently Buy Now and Hold for All Time

Today, we aren't messing around. These Canadian stocks are the best of the best for literally any portfolio.

Read more »

Walmart WMT stock market investment
Dividend Stocks

Better Buy in September: Passive-Income Plays or Growth Stocks?

This Exchange-Traded Fund could offer both monthly passive income and growth potential for investors unsure about the best stocks to…

Read more »

Payday ringed on a calendar
Dividend Stocks

Pensioners: 3 Stocks That Cut You a Cheque Each Month

These three monthly paying dividend stocks with high yields could boost pensioners' passive income.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

Want 6% Yield? The 3 TSX Stocks to Buy Today

These Canadian dividend stocks offer high yields of at least 6%, making them compelling investments for passive income.

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

Investors: Should You Buy CNR or CP Stock Right Now?

These two railway companies have long been superior investments. But one seem to slightly edge out the other.

Read more »

Pixelated acronym REIT made from cubes, mosaic pattern
Dividend Stocks

Should You Buy This REIT for its 8.4% Dividend Yield?

Slate Grocery is a REIT that is part of a recession-resistant sector, offering investors a forward yield of 8.8%.

Read more »