goeasy (TSX:GSY) is one of the best-performing Canadian stocks of the last decade. Never heard of it? Don’t worry; most people haven’t. That’s exactly why shares are continually discounted and why the stock rises by leaps and bounds nearly every year.
In 2019, goeasy shares rose by 75%. Since 2011, shares have risen by 1,000%.
What caused this incredible performance? More importantly, can you take advantage?
This is something special
goeasy is building something special, even if its core market is largely commoditized. All goeasy does is make small- and medium-sized loans to consumers. It has over 400 locations plus an online footprint. It’s made $3.6 billion in loans to more than one million people.
It doesn’t sound so special, does it? Here’s the kicker: more than nine out of 10 Canadians are happy with their total loan experience. Search for complaints about small consumer lenders online, and you’ll appreciate how rare this is. Borrowers often come away with a terrible perception of their respective lender.
What has industry-leading satisfaction levels lead to? Repeat customers. It now has 200,000 active customers, many of which have come back to the company time and time again. This has fueled annual revenue growth of 22.1% since 2001. goeasy has experienced 17 years of consecutive sales and profit growth, allowing the stock to deliver a total return of 6,600%.
Here’s the best part: the best is yet to come.
Growth to income
goeasy has all the makings of the next dividend dynasty. Notice I said the next. The company already pays a dividend, but it stands at a measly 1.8%. Over the next decade, however, that payout could easily be tripled or even quadrupled. The time to buy is before the market catches onto this rapid dividend growth.
Over the last 12 months, goeasy has generated $4.74 in EPS, yet its dividend only costs it $1.24. Having high levels of customer retention, not to mention being in a scalable financial services business, will allow goeasy to continue growing without needing as much cash for reinvestment. Already, the company could double its dividend and only pay out 60% of its income.
Judging by reinvestment needs, approaching a 60% payout is a likely scenario in the coming years. Adding in EPS growth, the dividend on today’s cost will likely exceed 6%. By the end of the decade, your dividend yield on today’s cost could be above 20%. That’s the advantage you get when you buy early.
Would a recession slow growth? Possibly, but looking at the company’s credit profile, it may be able to increase profits through a light recession, as its loyal customer base will turn to it for much-needed capital.
This stock is perpetually cheap, and today is no different. Shares currently trade at 14.5 times earnings. A cheap valuation, rapid growth, a durable moat, and the transition to dividends should continue the momentum in 2020.
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 Ryan Vanzo has no position in any stocks mentioned.