High Dividend 50: OneMain Holdings

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High-yield stocks pay out dividends that are significantly more than market average dividends. For example, the S&P 500’s current yield is only ~1.3%, a product of record highs in stock indices so far in 2024.

High-yield stocks can be very helpful to shore up income after retirement. For example, a $120,000 investment in stocks with an average dividend yield of 5% creates an average of $500 a month in dividends.

OneMain Holdings, Inc. (OMF) is part of our ‘High Dividend 50’ series, where we cover the 50 highest-yielding stocks in the Sure Analysis Research Database.

This article will examine and evaluate OneMain Holdings’ potential as a safe and secure source of income.


Business Overview

OneMain Holdings is a specialty finance company that provides personal loans to consumers. It came about as a spinout from Citigroup’s (C) financial services division.

OneMain Holdings has focused on providing services to clients with lower credit scores and has products such as BrightWay credit card, which reward holders for consistent on-time payments.

Investors often lump these types of business together as “subprime” lending, but OneMain Holdings average customer has a FICO score in the low 600s, which is quite a bit higher than several of the company’s peers.

OneMain Holdings reported first-quarter results on April 30th, 2024.

Source: Investor Presentation

The company’s earnings-per-share decreased to $1.29 from $1.48 but were impacted by a restructuring charge. Adjusting for this, results were about what the market had predicted. Revenue grew nearly 5% to $1.1 billion.

Net loan charge offs increased 86 basis points to 8.58%, but the company’s 30- and 90-day non-performing loan metrics improved on a sequential basis. This speaks more favorably to OneMain Holdings’ credit outlook for the remainder of the year.

OneMain Holdings is projected to earn $5.43 per share in 2024, which would be a 7.9% increase from the prior year. This would also mark a return to growth for the first time since 2021 for the company.


Growth Prospects

OneMain Holdings completed its IPO in late 2013. The company began as a much smaller lender that was only marginally profitable in its first few years as a standalone company.

However, it has grown tremendously since it’s IPO. Revenue has more than doubled from $1.2 billion in 2014 to $2.6 billion in 2023.

Top-line growth has flowed to the bottom-line as the company’s earnings-per-share have a compound annual growth rate of 39% over the last decade, which includes several meaningful declines during this period.

OneMain Holdings did see excellent results immediately following the worst of the Covid-19 pandemic in 2021 due to excellent credit conditions that the economy enjoyed due to pandemic-related government assistance. Now that this government assistance has ended, earnings growth has stabilized closer to pre-pandemic levels.

One way that OneMain Holdings has worked to attract customers its through its BrightWay credit card.

Source: Investor Presentation 

This product has been very popular, with the company seeing an 18% increase in card users in the first quarter. Approximately 509,000 customers spent $386 million on receivables during the period, which was a 17% increase from the prior year.

OneMain Holdings already controls much of the available market share for its specialty loan products. Future growth will depend on more direct aggressive growth with its peers.

This could be costly, which is why we do not anticipate more than 1% annual earnings growth over the next five years.


Competitive Advantages

OneMain Holdings has quite an impressive operations network. The company offers its services through its branch network of more than 1,400 locations along with its digital affiliates. .

It has more than 2.5 customers accounts and loans receivable book of $22 billion as of March 31st, 2024. The company faces significant competition from other specialty personal lenders such as World Acceptance.

However, OneMain Holdings has invested more quickly than its rivals in online originations and in sophisticated data analysis while centralizing loan underwriting operations. This has aided the business as the vast majority of its customers use its digital services.

The company has also advertised more heavily in credit coaching services, online credit aggregators, and other non-traditional venues, which has boosted OneMain Holdings’ visibility amongst potential customers.

This has allowed the company to grow at a more rapid pace since 2020, as the Covid-19 pandemic disrupted traditional loan distribution channels.

Furthermore, OneMain Holdings has dealt with multiple recessions when it was part of Citigroup, including the 2001 downturn and the 2008 financial crisis. This separates the company from many of its peers.

OneMain Holdings did suffer a decline in earnings-per-share in 2020 but rebounded to make a new high the next year, providing additional evidence that the company is at least somewhat recession-resistant.


Dividend Analysis

OneMain Holdings has increased its capital returns in recent years as the company has seen more stability than in previous periods. A dividend was initiated in 2019 as a result and the quarterly payment has more than quadrupled in the ensuing time frame.

The company has a five-year dividend growth streak, but annual raises have slowed down in the near-term. Most recently, OneMain Holdings raised its dividend 4% for the payment made in May.

The culprit for the slowing growth rate is that the payout ratio is now becoming elevated. Investors are likely to see a total dividend payment of $4.12 for 2024, which leads to a projected payout ratio of 70%. This would be the company’s second-highest payout ratio since it began distributing its dividend.

OneMain Holdings has paid a special sizeable dividend several times over the last five years, but we note that the company has not done so since 2021.

While dividend growth has slowed, the stock’s yield is very enticing. Shares of the company currently yield 8.6%, which is nearly seven times the average yield of the S&P 500 Index.

Investors are right to be skeptical of high yield stocks as this can often imply the potential for a weakening business model or a foreshadow possible dividend cut.

In the case of OneMain Holdings, we believe that the business is solid and the dividend is likely safe from being cut, though dividend growth might continue to slow moving forward given the payout ratio.


Final Thoughts

OneMain Holdings has been tested in several difficult periods of time and continued to perform much better than its competition. The company’s year-to-year growth rates will likely remain volatile, but OneMain Holdings has a solid track record overall.

The stock offers a yield that is very high, but we believe that the dividend is safe for now.


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Disclaimer: SureDividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities. However, the publishers of Sure ...

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