This Top Dividend Stock Is Selling Cheap: Time to Stash it in Your TFSA?

Discover this undervalued dividend stock, perfect for your TFSA, and capitalize on its potential growth and attractive yield before the market catches on.

| More on:
Retirees sip their morning coffee outside.

Source: Getty Images

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.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

The sun sets behind a high voltage telecom tower.
Dividend Stocks

Fortis Stock Is a Steady Dividend Player for Your Energy Portfolio

You can rely on Fortis stock for growing dividend income. Aim to buy the stock on market corrections to boost…

Read more »

Path to retirement
Dividend Stocks

Investing for Retirement? These Dividend Stocks Can Help You Get There

TD Bank and Brookfield Renewable Partners are two solid dividend-growth stocks to hold for decent total returns through retirement.

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Parents: Here’s How to Boost Your Monthly Income

Parents, you have enough to worry about. But if you can put aside even $40 per month, that can create…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Looking for a Reliable Retirement Income? Consider These Dividend-Paying Stocks

Investors looking to establish a reliable retirement income have no shortage of options to choose from. Here's a trio of…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

3 Oversold Dividend Stocks That Could Make You Rich When They Bounce Bank

Don't wait around for these oversold dividend stocks to bounce back, each certainly will, which is why now is the…

Read more »

A small flower grows out of a concrete crack.
Dividend Stocks

Down 8% Last Month, Canadian Tire Stock Is a Deal Heading Into June 2023

May wasn't a good month for the stock, but June has been different from the beginning and may present an…

Read more »

Canadian Dollars
Dividend Stocks

Need Passive Income Right Now? Turn $20,000 Into $152 Every Month

This dividend stock may be down now, but offers substantial passive income through its 9.31% dividend yield as of writing!

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Is Exchange Income Stock a Buy?

Even within an industry, some stocks might be worth considering in certain market conditions, while others may be avoided.

Read more »