Canadian investors can use the Tax-Free Savings Account (TFSA) to buy and hold quality dividend-growth stocks such as goeasy (TSX:GSY). Generally, a widening base of cash flow and earnings allows dividend-paying companies to grow their payouts each year. In addition to a steady stream of recurring income, dividend-growth stocks should also help you create wealth via capital gains, both of which are exempt from taxes.
The TFSA contribution room has increased to $7,000 in 2024, bringing the maximum cumulative contribution limit to $95,000. Let’s see how you can deploy $7,000 in goeasy stock to earn $1,804 in tax-free passive income next year.
Source: Getty Images
Why should you invest in goeasy stock?
Valued at a market cap of $3.08 billion, goeasy is part of the cyclical lending sector. However, it has easily outpaced its lending peers in the last two decades, returning close to 3,500% in dividend-adjusted gains since August 2004.
goeasy is focused on building and expanding Canada’s non-prime consumer lending business. In the last 33 years, it has originated $14.3 billion in loans to 1.4 million customers. It uses risk-based pricing to upgrade its customers, lowering their interest rates and borrowing costs.
Despite a sluggish macro environment and headwinds such as the COVID-19 pandemic, inflation, and rising interest rates, goeasy has delivered an average return on equity of 26.4% in the last five years.
goeasy has established strong credit and underwriting practices to prudently manage risk, which allows the company to report stable credit performance across market cycles. It maintains a strong balance sheet with diversified funding sources, resulting in significant funding capacity to execute its growth initiatives.
goeasy’s growth story is far from over. It is in the early stages of product, channel, and geographic expansion, and it plans to grow its consumer loan portfolio to $4 billion by the end of 2024.
Strong performance in Q2 of 2024
Since 2013, goeasy has grown its
- Revenue by 19% annually;
- Net income by 33.3% annually; and
- Adjusted earnings by 28.8% annually.
In the second quarter (Q2) of 2024, goeasy generated a record $827 million in loan originations, an increase of 24% year over year, as credit applications grew 34% in the last 12 months. goeasy explained its growth was tied to strong performance across product and acquisition channels, which include unsecured lending, home equity lending, automotive financing, and point-of-sale.
It ended Q2 with a consumer loan portfolio of $4.14 billion, up 29%, allowing the company to increase sales by 25% to $378 million.
Its operating income in Q2 grew 33% to a record $147 million, indicating an operating margin of 39%, up from 36.5% last year. Its adjusted net income rose 27% to $71.3 million or $4.10 per share.
How can you earn $1,804 by investing in GSY stock?
Analysts expect goeasy to increase revenue by 21.8% to $1.55 billion and earnings by 19.4% to $16.97 per share in 2024. So, priced at 10.8 times forward earnings, GSY stock is quite cheap and trades at a discount of 24%, given consensus price target estimates.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | CAPITAL GAINS | TOTAL RETURNS |
| goeasy | $183.79 | 38 | $178 | $1,626 | $1,804 |
An investment of $7,000 in GSY stock will help you buy 38 shares of the company. If the stock reaches its target price of $227, your investment would be worth $8,626 in the next 12 months. Further, dividend payouts should be close to $178 in this period, increasing your total potential returns to $8,804.
