Invest $10,000 in This Dividend Stock for $6,914 in Passive Income

Here’s why goeasy should be part of your dividend portfolio in 2024, despite returning outsized gains to shareholders.

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Investors looking to create a significant stream of passive income in 2024 and beyond should consider holding quality dividend stocks. It’s essential to identify a portfolio of stocks that trade below their intrinsic value while offering a tasty dividend yield.

How do you increase your passive income?

Undervalued dividend stocks offer the opportunity to benefit from steady dividend income as well as long-term capital gains. As dividends are not guaranteed, it’s crucial to hold shares of companies that generate cash flows across market cycles. Moreover, these cash flows should grow each year, allowing companies to increase their dividend payouts, lower balance sheet debt, and target acquisitions.

Basically, the dividend payouts should be sustainable and grow at a consistent pace, enhancing the effective yield over time, making goeasy (TSX:GSY) a solid option in 2024.

goeasy is a TSX dividend stock

Valued at $3 billion by market cap, goeasy has already created massive wealth for shareholders. In the last two decades, goeasy has returned 2,190% to investors, and after adjusting for dividend reinvestments, cumulative gains are much higher at 3,760%. Despite its market-thumping returns, goeasy stock offers a tasty dividend yield of 2.7% and trades at a reasonable valuation.

goeasy is one of Canada’s largest players in the non-prime lending space. To date, it has originated $13.5 billion in loans to more than 1.3 million Canadians. In the last five years, it has increased revenue by 20% annually while adjusted earnings grew by 32.2%, which supported dividend hikes.

In the last 20 years, GSY has raised dividends by 26.8%, making it among the best dividend-growth stocks on the TSX. goeasy reported a free cash flow of $377 million in 2023. Comparatively, it paid shareholders annual dividend worth $65 million, indicating a payout ratio of less than 20% which is quite low.

Despite a tepid lending environment, goeasy ended the first quarter (Q1) of 2024 with loan originations of $686 million, up 12% year over year. The company experienced strong performance across product and acquisition channels, including unsecured lending and auto financing.

goeasy has reported 91 consecutive quarters of positive net income and has paid dividends each year since 2004. Additionally, it has raised dividends for 10 straight years.

Analysts tracking goeasy stock forecast its adjusted earnings to expand from $14.21 per share in 2023 to $17 per share in 2024 and $20.3 per share in 2025. Priced at 10.1 times forward earnings, GSY stock is quite cheap, given earnings are forecast to rise by 12% annually in the next five years.

The Foolish takeaway

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUT (Quarterly)Portfolio Total
Goeasy – last year$104.7295$1.01$95.95$10,044
Goeasy – Now$175.695$1.17$111.15$16,793

An investment of $10,000 in goeasy stock last year would have let you buy 95 shares of the company. In the last 12 months, these shares would have earned $384 in annual dividends, indicating a trailing yield of 3.84%. Additionally, GSY stock has risen by 65.3% in the past year, indicating your unrealized capital gains would be $6,530, which means since May 2023, your total cumulative gains in GSY stock would be $6,914.

Investors should note that it will be impossible for goeasy to deliver these astonishing gains year over year. However, its cheap valuation and rising dividend payout should help GSY stock beat the broader markets going forward.

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.

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