Growth companies tend to grow their financials above the industry average, thus delivering higher returns. These companies require higher capital to fund their growth prospects. So, they will reinvest their profits in their growth initiatives. However, few growth companies pay dividends at a healthier rate. These exceptions are my two top picks.
goeasy (TSX:GSY) is an alternative financial services company that provides leasing and lending services to subprime customers. Over the last five years, the company has grown its revenue and diluted EPS (earnings per share) at a CAGR (compounded annual growth rate) of 20% and 27%, respectively. Besides, its net charge-off rate has declined from 13.6% in 2017 to 9.1% in 2022, which is encouraging. Supported by these solid financials, the company has delivered total shareholders’ return of 225% over the last five years at an annualized rate of 26.7%.
Meanwhile, goeasy has acquired just 1% of the $186 billion Canadian non-prime consumer credit market. So, it has substantial scope for expansion. Given its expanded product offerings and omnichannel distribution channels, the company is well-equipped to grow its market share. Meanwhile, management expects its loan portfolio to reach $5 billion by the end of 2025, representing 80% growth from its 2022 levels. The expansion of the loan portfolio could grow its topline at an annualized rate of 27% through 2025 while delivering return on equity of over 22% annually. So, the lender’s growth prospects look healthy.
Besides, goeasy has been paying dividends for 19 consecutive years. Over the last nine years, the company has raised its dividends uninterruptedly at an annualized rate of 35%. Looking forward, its dividend yield for the next 12 months is 3.5%. However, amid the recent pullback, goeasy has lost a substantial percentage of its stock value compared to its 2021 highs. Currently, it trades at an attractive NTM (next 12 months) price-to-earnings multiple of 7.7, making it an attractive buy.
Suncor Energy (TSX:SU) was one of last year’s top performers, as its stock price rose by over 40%. The company’s financials are highly correlated to oil prices. So, rising oil prices boosted its financials and stock price in 2022. However, with oil prices cooling substantially from last year’s highs, Suncor Energy has also witnessed substantial selling over the previous few months and trades at a 23% discount from its 52-week high. The steep correction has dragged its valuation down, with its NTM price-to-earnings multiple falling to 6.2.
Amid the contagion risk in the banking sector after the collapse of Silicon Valley Bank and Signature Bank, West Texas Intermediate (WTI) had declined to a low of US$64.12/barrel on March 20. However, with the reassurance from the Federal Reserve to safeguard against further banking crises, oil prices have bounced back. WTI crude is trading around US$71/barrel. Meanwhile, analysts are bullish on oil amid supply concerns and rising demand in China. The midpoint of the energy company’s upstream production guidance for 2023 represents 1.6% growth from the previous year. So, Suncor’s growth prospects look healthy.
Meanwhile, Suncor Energy generated impressive cash flow of $15.7 billion from its operating activities last year, which helped it reduce its debt and raise dividends twice. It currently pays a quarterly dividend of $0.52/share, with its yield for the next 12 months at 5.05%. So, given its healthy growth prospects, attractive valuation, and high yield, SU stock would be a stellar buy.