While most investors are shunning risk assets, contrarians are spotting opportunity in Canadian financial markets. Shares of Toronto-listed goeasy Ltd. (TSX: GSY), a leading non-prime lender, have retreated roughly 20% from their recent highs. Yet its stellar record of earnings growth and a rapidly rising dividend are now attracting the attention of investors with a higher risk tolerance.
This non-bank financial institution has been a quiet standout on the Toronto Stock Exchange. Over the past ten years, its adjusted earnings per share have skyrocketed from C$1.34 to C$16.71, achieving a compound annual growth rate of nearly 29% – a rare feat in the financial sector.
This growth has translated into extraordinary shareholder returns. A C$10,000 investment a decade ago, with dividends reinvested, would have grown to over C$100,000 today, representing an average annual total return of 27%. This performance places goeasy among the TSX’s top performers over that period.
Its dividend growth is equally impressive. With a 10-year annualized dividend growth rate of 30%, it ranks at the top of the TSX. The company further demonstrated its confidence in February by announcing another dividend hike of nearly 25%, continuing a multi-year streak of increases.
The high returns come with significant risks. goeasy’s core business is subprime lending, and its credit loss rate consistently targets a range of 8.75% to 9.75%, coming in at 8.8% in its latest quarter. Despite this inherent business risk, the company has maintained an average return on equity of around 20% over the past decade, underscoring its robust profitability.
Regulatory pressures are a constant shadow. Government-imposed caps on lending rates and broader economic downturns, which spark concerns about subprime borrowers’ ability to repay, can trigger sharp stock price volatility. However, a counter-cyclical opportunity exists. When traditional banks tighten lending standards during economic slumps, some near-prime borrowers often turn to lenders like goeasy, potentially fueling growth even in a weaker economy.
At a current price of C$171.53, goeasy trades at a forward P/E ratio of approximately 9.8, about 17% below its historical average. Its dividend yield now stands at 3.4%, significantly above its 10-year average yield of 2.3%, suggesting the valuation is entering an attractive zone.
For investors who can stomach higher volatility, goeasy presents a rare combination of dividend income, a valuation discount, and growth potential. Analysts suggest a “buy-on-dips” strategy, positioning the stock as a non-core holding within a long-term portfolio. While its business model faces cyclical challenges, its proven risk management and consistent track record make it a contrarian investment candidate worth watching for 2025.
