The alternative lending industry is picking up in Canada in a big way. As major financial institutions are forced to lend with extreme regulatory limitations like the mortgage stress test, alternative lenders don’t have to follow these restrictions, allowing them more leniency on who they wish to lend to.
According to CBC, there were 200 to 300 active alternative lenders in Canada last year holding $13 billion to $14 billion of outstanding Canadian mortgages. That’s up from $11 billion to $12 billion the year prior and $8 billion to $10 billion in 2016. There are a ton of Canadians heading to these lenders to purchase real estate, that’s clear.
One alternative lender that is making waves in Canada recently is Goeasy Ltd (TSX:GSY). The company primarily operates in two segments, Easyhome and Easyfinancial. And while the company doesn’t offer mortgage solutions like Equitable Bank (TSX:EQB) does, it still provides an excellent alternative for Canadian investors looking to diversify away from major financial institutions.
Strong Q2 results for Goeasy
Goeasy reported second quarter earnings after the bell yesterday, and the results have left investors impressed. Up nearly 4.5% this morning, Goeasy posted revenue of $148 million in the second quarter, which is an increase of 20% over the same quarter last year.
The company’s operating margins are up 6% year over year at 28% and it reported operating income of $40.9 million, which is a 53% increase from one year ago today. Net income and earnings per share increased 66% and 54% respectively.
Goeasy’s easyfinancial department saw the biggest increase across the board. Its loan application volume was up 18%, revenue 27% and new customers made up 66% of its loan advances in the quarter, which is a level not seen since 2012.
The company is managing to keep its delinquency rate right on par, even through harsh economic times. Reporting a delinquency rate of 4.3%, the company is right on par with the 4.2% reported in the same period of 2018.
What does this mean for Goeasy overall?
It’s hard to find a company on the TSX that is growing faster than Goeasy. This quarter marks the 37th straight quarter of same store sales growth and 72nd quarter of positive net income. Management is also executing share buybacks at an extensive pace as purchases of 95,500 shares this quarter brought repurchases to a total of 777,452 since November of 2018.
Its consumer loan portfolio grew 39% year over year and it’s clear the company is doing everything right to acquire new customers. Goeasy plans to use $200 million in funding capacity to continue to grow its consumer loan portfolio and hit expected growth targets. Over the next 2 years, Goeasy plans to achieve a consumer loan portfolio of $1.5-$1.7 billion, which would be a 64% increase from today’s numbers.
Along with excellent growth, Goeasy provides an excellent dividend. Its yield is small at 1.73% at the time of writing, but with a 4 year dividend growth streak, a 5 year dividend growth rate of 21% and a payout ratio of only 24%, the company is showing that it does plan to grow, and plans to reward shareholders extensively in the process. It’s exactly why it’s named one of the best stocks to buy in Canada right now.