This finance company beat analysts’ earnings estimates by $.07 last quarter. The company has a current dividend yield of 5.26%, paid quarterly, plus a habit of paying special dividends.
OneMain Holdings, Inc. (OMF)
From The Dividend Hunter
I have been interested for a while in digging into OneMain Holdings. As a result of that research I’m adding OneMain to the Dividend Hunter recommendations list.
OneMain Holdings is a financial company that provides loans and insurance products to “near prime” customers. Products are sold through 1,400 branch offices in 44 states and online channels. OneMain holds a greater than 20% market share of the near-prime lending sector.
As of 2020, OneMain has 2.3 million customers. Over the last two years, the company has started to offer smaller loans, better credit offerings, and new insurance products. The goal is to go from 20% of customers with two or more products to 50% with multiple products. To meet that goal, OneMain plans to offer its first credit card by the end of 2021.
A recent presentation noted that the near-prime credit card market of $427 billion dwarfs the $81 billion for near-prime personal loans. A successful credit card product could be a massive boost for the OneMain results. A pilot launch of two credit card offerings started in the third quarter. The program is expected to scale by the end of 2022.
OneMain is a very profitable company:
2021 H1: $5.66 per share
2021 Q3: $2.17 per share
The falloff for 2020 is understandable, and the company has come back strong in 2021. The Wall Street analysts estimate the company will earn $4.61 per share for the second half of 2021. A $2.20 to $2.50 quarterly run rate seems very feasible going forward.
The considerable risk for OneMain would be a deep recession, where its more financially at-risk customer base would make for more loan defaults and less money borrowed. In the current environment, the company has excellent control of its loan losses, with the charge-off ratio declining steadily from 6.5% in 2018 to an estimated 4.2% for full-year 2021.
OneMain has been a superior dividend-paying stock. The company pays a combination of a regular quarterly dividends and a bonus dividend in the first and third quarters. Let’s look at each separately.
The company started to pay quarterly dividends in 2019, with a $0.25 per share prate. The rate increased to $0.33 for the 2020 first quarter and $0.45 three quarters later. With the 2021 second-quarter earnings, the dividend climbed to the current $0.70 per share quarterly rate.
The bonus dividends have been significant. In September 2019, investors received an extra $2.00 per share. The company paid $2.50 for the first quarter of 2020 and $2.00 for the 2020 third quarter. The two bonus dividends for 2021 have been $3.50 per share each. A total of $13.50 per share of special dividends was earned by investors for the three years 2019 through 2021. Between the regular quarterly dividends and the semi-quarterly bonus dividends, it appears that OneMain pays out 80% to 85% of its net income as dividends to investors. The next bonus dividend should be paid in February 2022.
Barring a severe economic recession, the odds are good that OneMain will continue to grow its business—and its profits. With most of the profits shared with investors in the form of special dividends, I view OneMain as an attractive income stock, and an excellent addition to the Dividend Hunter portfolio.
Based on the regular quarterly dividend, I will put OneMain under the Stable Dividend Investments group of recommended stocks. We will view the special dividends as just that, some special found money. I expect the regular dividend to grow over time.
Editor’s Personal Position: Long OMF
Tim Plaehn, The Dividend Hunter, yn345.isrefer.com/go/cabmdpc/cab/, November 2021