It’s not surprising why dividend growth stocks have become such a popular choice for investors seeking a reliable income stream and long-term capital appreciation. Dividend growth stocks offer the best of both worlds, passive income today, helping to lower the risk of the investment, in addition to the potential for impressive and consistent growth in the stock price down the road.
Plus, not only can you expect the dividend payments to increase each year from top dividend growth stocks, but the value of these companies can also increase considerably, leading to major returns on investment.
Furthermore, many of these high-quality dividend growth stocks generally exhibit lower volatility, making them attractive for individuals with a lower risk tolerance or those nearing retirement.
So if you’re looking for a top dividend growth stock to buy and hold for years in your portfolio, here’s why goeasy (TSX:GSY) seems like the perfect investment to make today.
This dividend growth stock continues to rapidly expand its business
goeasy’s business has many attractive features that make it one of the best dividend growth stocks to buy now. But perhaps the most compelling feature is the incredible growth rate of both its revenue and profitability.
Over the last five years, for example, its revenue has increased 109% from $305 million to $637 million. Furthermore, its normalized earnings per share (EPS) have increased from $2.97 in 2017 to $11.55 in 2022, an increase of 288%.
That impressive growth has driven the share price up more than 186% over that stretch. Furthermore, the dividend annual payout has increased from just $0.90 five years ago to $3.84 today.
And on top of all this growth potential, the stock has become ultra-cheap over the last year and sold off significantly this week, creating an ideal buying opportunity for many investors.
Why is goeasy’s stock selling off?
goeasy is a specialty finance company that predominantly deals with subprime borrowers. The stock takes on more risk lending to these borrowers and, therefore, can charge a higher interest rate.
So, in addition to the stock falling in value as many expect a recession – with the Canadian federal budget being released this week and proposing to lower the interest rates that companies like goeasy can impose – many investors are worried about its potential to grow over the coming years.
It’s worth noting, though, that part of why goeasy has grown so rapidly in the past is that it has managed its loan portfolio well and kept charge-offs low.
Furthermore, if the government goes ahead and lowers the interest rates that the dividend growth stock can charge to borrowers, that will likely have a bigger impact on Canadians looking to secure a loan rather than lenders like goeasy. That’s because the company simply won’t lend to these higher-risk clients.
So with goeasy stock now trading below $90 at the time of writing, down more than 50% off its all-time high, and at a forward price-to-earnings ratio of just 6.3 times, it seems like the perfect time to consider a position.
The stock now offers a yield of more than 4%, and in 2022 paid out just over 30% of its normalized earnings, showing how safe its dividend is.
Therefore, if you’re looking to add high-quality dividend growth stocks to your portfolio today, or simply to buy some of the cheapest stocks on the market, there’s no question that goeasy is easily one of the best Canadian stocks that investors can buy now.
