When discussing passive income, we often talk about stocks like Enbridge or Telus Corporation. But today, I will be discussing goeasy (TSX:GSY). Did you know a $7,000 investment in goeasy on January 1, 2015 would have given you $1,886 in annual dividend income in 2024? And that’s not all. Your $7,000 would now be over $73,500. GSY is a dividend and growth stock that not only gives you appreciating passive income but also grows your investment.
One stock for passive income and wealth creation
goeasy is a sub-prime lender that gives small, short-term loans to people who have been rejected by banks due to credit history. And when you take a look around, thousands of Canadians fall into that bracket. While banks look for a credit score above 700, goeasy uses a median credit score of 585, hinting that it lends to slightly risky borrowers. It charges them a higher interest rate.
Therefore, the right way to look at goeasy’s fundamentals is to look at three things:
- Its loan portfolio – the total amount it has lent to borrowers.
- Portfolio yield – the weighted average interest the company charges on its loans.
- Net charge-off rate – the percentage of loans from its portfolio that are not recoverable.
goeasy earns money from the processing fee and interest earned. The company raises debt financing at 6.9% interest and loans it to sub-prime borrowers at 33–35% interest, thereby earning net interest income.
The company looks to grow its loan portfolio from $4.5 billion in 2024 to $6 billion by 2026 and improve the credit quality of consumers. A better credit score means lower interest on loans but it also means lower risk. The company aims to reduce its net charge-off rate from 8%–10% in FY24 to 7.5%–9.5% in FY26, which could reduce its loan yield from 33%–35% in 2024 to 29.5%–31.5% in FY26.
The income is generated into free cash flow. The lender uses this money to lend and pay dividends. In the last 10 years, goeasy has increased its dividend at an average annual rate of over 30%.
A dividend stock to invest $7,000 in
| Year | Annual Dividend per share | Dividend on $7,000 investment |
| 2024 | $4.68 | $1,886.04 |
| 2023 | $3.84 | $1,547.52 |
| 2022 | $3.64 | $1,466.92 |
| 2021 | $2.64 | $1,063.92 |
| 2020 | $1.80 | $725.40 |
| 2019 | $1.55 | $624.65 |
| 2018 | $0.90 | $362.70 |
| 2017 | $0.72 | $290.16 |
| 2016 | $0.50 | $201.50 |
| 2015 | $0.40 | 161.20 |
A $7,000 investment in goeasy in 2015 would have bought you 403 shares. These shares would have paid $161 in annual dividends in 2015. At the rate the company grew its dividend, the 403 shares would pay you $1,886 in dividends this year.
How to earn $1,100 in passive income
The same level of growth may or may not be replicated by the lender in the coming 10 years. Hence, it is safe to assume that goeasy grows its dividend by 20% annually.
| Year | Dividend CAGR of 20% | Dividend on $7,000 investment |
| 2024 | $4.68 | $177.84 |
| 2025 | $5.62 | $213.41 |
| 2026 | $6.74 | $256.09 |
| 2027 | $8.09 | $307.31 |
| 2028 | $9.70 | $368.77 |
| 2029 | $11.65 | $442.52 |
| 2030 | $13.97 | $531.03 |
| 2031 | $16.77 | $637.23 |
| 2032 | $20.12 | $764.68 |
| 2033 | $24.15 | $917.62 |
| 2034 | $28.98 | $1,101.14 |
A $7,000 investment today can buy you 38 shares that generate $177.80 in annual dividends. If the company grows its dividend by 20% annually, these shares can generate $1,100 in annual passive income by 2034.
goeasy has the potential to grow its free cash flow as it expands its loan offerings to include new types of loans and gradually expands its geographic presence while keeping credit risk in check.
