I know what you’re thinking. A 2.8% dividend yield? That sounds like next to nothing for a $10,000 investment. But I have news for you: when it comes to a secure and stable income you want to keep rolling in, it’s not the yield that counts; it’s the support of that yield.
When it comes to a dividend that can keep on coming, goeasy (TSX:GSY) makes it, well, easy! So, let’s look at what makes this such a strong buy.
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What you could earn
First, let’s look at what investors can gain from that $10,000 investment. At a $5.84 dividend annually, coming out as a 2.8% yield, shares currently come out as about $204.60. That means a $10,000 investment can bring in about 49 shares, generating about $286 per year, or $71.50 per quarter in dividends.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| GSY | $204.35 | 49 | $5.84 | $286 | Quarterly | $10,013 |
What’s more, that dividend is supported by a payout ratio currently at just 32%! This leaves room to continue growing, but also to increase that dividend, which it’s done for 11 consecutive years, allowing the dividend to be well covered with practically no risk of being cut. And over time, that growth compounds at a high rate.
What’s growing the dividend?
Alright, so if that dividend is so safe, what’s behind it? This comes down to stable growth. In this case, goeasy’s business model fuels the long-term dividend growth. It holds a loan portfolio that’s up 23% year over year to $5.1 billion, with expectations to hit the high end of $5.4 to $5.7 billion by the year-end. Plus, profitability came in with reported returns on equity (ROE) up 29%, and margins in the 30% range. That’s excellent for any lender, never mind a non-prime one.
Furthermore, the dividend stock’s credit is stellar, with net charge-offs at 8.8%, better than expected and at the low end of guidance. And with $1.7 billion in available liquidity, goeasy can keep expanding its loan book and still support its dividend.
Considerations
Now, before you buy in bulk, it’s important to know that there are a few items to watch. The most obvious is that goeasy is a non-prime lender. This gives goeasy exposure to higher-risk borrowers. While charge-offs are stable for now, a deep recession can put pressure on credit quality. Luckily, for now, that doesn’t seem to be an issue, with the Bank of Canada recently cutting rates back to 2.5%.
Then there’s debt. This dividend stock has manageable debt at 3.6 times equity, but the business does rely heavily on borrowing. And of course, the yield isn’t that high, appealing to future dividend growth rather than more immediate cash.
Bottom line
Overall, if you have $10,000 to put into a dividend stock, goeasy belongs at the top of that list. It may not have the highest yield for maximum income right away, but it has a huge growth story. Not just in share price, but dividends as well. So, if your plan is to buy and hold for years, letting dividends rise again and again, goeasy stock can be a stellar addition to your portfolio.
