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

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »