Canada’s big banks have generated stable returns to shareholders in the past 20 years. The largest TSX banks have consistently grown earnings allowing them to raise dividends over time, despite the cyclicality associated with the lending sector.
But due to their massive size, it might be difficult for these blue-chip financial heavyweights to replicate their returns in the upcoming decade. Moreover, rising interest rates will likely drive demand for consumer, auto, and mortgage loans lower in the near term.
But here is one other small-cap stock part of the consumer lending space, which is poised to deliver market-beating returns to shareholders in 2023 and beyond. Let’s see why I’m bullish on this dividend-growth king right now.
Is goeasy stock a good buy?
goeasy (TSX:GSY) is successfully building Canada’s non-prime consumer lending business and has served over 8.5 million customers to date. Despite a sluggish macro environment, goeasy has funded $1.28 billion in loan originations in the first six months of 2023, an increase of 16% from $1.1 billion in the year-ago period.
It ended the quarter with a consumer loan receivable portfolio of $3.2 billion, up 35% year over year from $2.37 billion. This allowed goeasy to increase report record sales of $590 million in the first half of 2023, an increase of 22% year over year.
Its operating income grew 29% to $213 million from $165 million in the year-ago period. Moreover, goeasy reported an efficiency ratio of 32.1% and an improvement of 280 basis points year over year. The efficiency ratio is calculated by dividing non-interest expense by revenue which suggests goeasy managed to lower its cost base despite elevated inflation levels.
Its stellar performance allowed goeasy to report an adjusted net income of $109 million, or $6.39 per share, in the last two quarters. In the prior-year period, it reported a net income of $92.6 million and earnings of $5.55 per share.
What is the price target price for GSY stock?
The company has originated over $11.4 billion in loans to date and posted 88 consecutive quarters of positive net income, showcasing the resiliency of its business model. goeasy also recorded its 53rd consecutive quarter of same-store revenue growth.
“The second quarter continued to highlight the growth potential of our business model and the strength of our credit performance,” said Jason Mullins, goeasy’s president and chief executive officer.
goeasy emphasized it received a record number of applications for credit in the second quarter, allowing it to onboard 42,000 additional customers in the quarter. This should allow goeasy to end the year with a loan book of $3.6 billion.
goeasy has paid a dividend to shareholders every year since 2004 and increased payouts for the ninth consecutive year in 2023. It currently pays shareholders an annual dividend of $3.84 per share, translating to a yield of 3%. Additionally, goeasy has increased the payouts at an annual rate of 17.8% in the last 16 years, which is quite exceptional.
Priced at 9.3 times forward earnings, GSY stock trades at a discount, given the company is forecast to increase adjusted earnings at an annual rate of 12% in the next five years. Analysts tracking GSY stock expect shares to rise by 37.3% in the next 12 months, given consensus price target estimates.
