Goeasy Ltd. (TSX:GSY) has quietly become a leader in Canada’s subprime consumer credit market. The company has two distinct businesses.The first is selling and financing furniture for folks with bad credit. The other makes unsecured loans to similar customers for amounts from $500 to $10,000.
Growth has been fantastic over the last five years. In 2011, revenue was $188 million and net income was $14 million. In 2015, these numbers were $304 and $24 million, respectively.
According to analyst estimates, revenue could hit $350 million for 2016, with the bottom line reaching $34 million.
Many investors still feel Goeasy has plenty of growth potential left. As more jurisdictions crackdown on payday loans across Canada, the logical alternative is for borrowers to take out unsecured loans from Goeasy.
According to industry estimates, some two million Canadian borrowers take out a payday loan each year. That’s a lot of potential customers.
Yet Goeasy shares trade at a very reasonable valuation of less than ten times forecast 2015 earnings. Part of the reason why shares are so cheap is the moral factor. Many don’t feel comfortable investing in a company that charges interest rates of more than 40%.
But for dividend growth investors, Goeasy represents a nice opportunity. With a dividend of 2.2%, the company has a payout ratio of less than 25% of projected 2016 earnings. The dividend was already hiked 30% in 2016.
Investors should expect a similar hike in 2017, and potentially in the future as well. It can certainly afford it.
