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Practically a yr and a half in the past, OneMain Holdings (NYSE: OMF) yielded 8%.
My solely concern on the time was that web curiosity earnings, or NII, was anticipated to drop to $3.3 billion. That also would’ve been sufficient to pay the dividend, nevertheless it may have signaled the start of a destructive pattern. (Internet curiosity earnings is how we measure monetary firms’ capacity to pay their dividends.)
Immediately, as a result of the inventory worth has risen since then, OneMain yields 7.3%.
The corporate, additionally known as OneMain Monetary, is a subprime lender, providing bank cards, private loans, auto loans, and different credit score merchandise. It has been working for 113 years and has expanded to 47 states from 44 final yr.
As for the corporate’s outcomes, analysts – as they usually do – received it mistaken. As a substitute of reporting $3.3 billion in web curiosity earnings, OneMain generated $3.8 billion in NII in 2024.
It paid out $498 million in dividends for an ultra-low payout ratio of 13%.
This yr, NII is forecast to rise to $3.9 billion, whereas the payout ratio is projected to say no to a good decrease 11%.
I wish to see payout ratios under 75% so I will be assured within the firm’s capacity to afford its dividend if it has a tough yr or two. A payout ratio barely above 10% means OneMain has loads of money to pay the dividend even when NII had been to take an enormous hit.
The corporate started paying a quarterly dividend in 2019. The payout has risen yearly by a powerful compound annual development fee of 27%, although the will increase have turn out to be significantly smaller lately.
The increase final yr was 4%. OneMain has not raised the dividend for the reason that second quarter of 2024, nevertheless it has additionally by no means lower the dividend. It often pays a particular dividend, although it hasn’t executed so since 2021.
There aren’t any considerations about OneMain Holdings’ capacity to pay its dividend and no blemishes on its dividend-paying monitor report.
This 7.3% yielder’s dividend is secure.
Dividend Security Ranking: A
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