Investing in undervalued dividend stocks can help you consistently outpace broader market returns. Quality dividend stocks typically provide investors with a steady stream of recurring passive income, as well as the opportunity to generate returns via long-term capital gains.
Moreover, holding these cheap dividend stocks in a TFSA (Tax-Free Savings Account) ensures all such returns will be sheltered from Canada Revenue Agency taxes.
Goeasy (TSX:GSY) is one such TSX dividend stock that is cheap and trading at an attractive valuation. Let’s see why I’m bullish on this undervalued TSX stock.
Is Goeasy stock a buy or a sell?
The banking crisis in the U.S., rising interest rates, and a sluggish lending environment have dragged shares of Goeasy 54% below all-time highs. Currently valued at a market cap of $1.6 billion, GSY stock pays shareholders an annual dividend of $3.84 per share, translating to a dividend yield of 4.2%.
Goeasy is one of the largest non-prime lenders in Canada. Since its inception, it has originated $10.7 billion in loans to more than 1.3 million Canadians. The company’s suite of products includes secured and unsecured loans as well as POS, or point-of-sale, financing. It basically aims to provide capital access to customers who have previously been denied credit by financial institutions.
Its easyhome business offers lease-to-own financing for home entertainment products, appliances, and home furniture. The easyfinancial segment is a direct-to-consumer lending product where it provides personal loans and home equity loans. The LendCare acquisition expands Goeasy’s product portfolio to include financing for automotive, healthcare, retail, and power sports.
A smart risk manager
Equipped with robust credit and underwriting practices, Goeasy has prudently managed risk in the past, allowing it to generate outsized gains for shareholders. In the last five years, the lender has delivered an average return on equity of 26.5% due to its strong balance sheet, diversified funding sources, and significant funding capacity.
Goeasy emphasizes that it is still in the early stages of geographic expansion, and expects to grow its consumer loan portfolio to $4 billion by 2024.
Goeasy has increased its revenue from $200 million in 2012 to $1 billion in 2022, indicating annual growth rates of 17.7% in this period. In the last 10 years, net income has surged by 29% annually, making it one of the fastest-growing TSX stocks.
Driven by this solid expansion in the top line and earnings, GSY stock has increased dividends by 17% annually in the last 18 years, which is quite exceptional.
A look at GSY stock price and valuation
Despite a challenging macro environment, Goeasy is on track to increase sales by 20% to $1.2 billion in 2023 and 12.5% to $1.4 billion in 2024. Moreover, adjusted earnings are forecast to expand by 12% annually in the next five years. Priced at 6.8 times forward earnings and 1.2 times forward sales, GSY stock is very cheap, given its growth rates.
Bay Street remains bullish on GSY stock and expects it to return close to 60% in the next 12 months. Since May 2003, Goeasy stock has returned a staggering 3,530% to shareholders.