Income investors are struggling. Term deposit rates are hovering between 2.5% and 3.5%, the big four banks are yielding around 5% and looking shaky, and investors are getting worried about the outlook for the 5% dividend on offer from the big mining companies.
As a result, investors are looking far and wide for companies that offer a reliable and decent dividend yield over the next couple of years. I believe I've found one such company, the $1 billion market capitalisation finance group FlexiGroup Limited (ASX: FXL).
The Numbers
Before I go into why it's a company worth owning, the most appealing feature of the company at the moment is its share price and corresponding dividend yield. Flexigroup's share price has pulled back over 15% from over $3.50 in June to today's price of $3.03 following the shock resignation of Managing Director and Chief Executive Officer Tarek Robbiati. While the news creates some uncertainty, it also gives income investors an opportunity to buy into an improving dividend story at a nice price.
Analysts are forecasting a final dividend of 9.25 cents in September, and a dividend of 20 cents per share for the full 2016 financial year. 29.25 cents over the next 13 months corresponds to a fully-franked dividend yield of 9.7%, or 13.8% grossed up.
Who is Flexigroup?
Flexigroup provides "a range of finance products and payment solutions to consumers and businesses through a network of retail and business partners. This includes interest free cards and no interest ever payment plans; consumer and business leasing solutions; mobile phone and broadband payment plans; and online and mobile payment services."
What that actually means is that FlexiGroup works with more than 14,000 retail partners in Australia, New Zealand and Ireland, including Harvey Norman, IKEA, Dick Smith, AGL Solar, Apple Resellers and Fantastic Furniture to provide financing solutions to customers under the FlexiRent, Certegy Ezi-Pay and Blink brands (among others).
In recent years the company has managed to generate a strong return on equity of 24% and grow the dividend yield and net profit while investing heavily in technology to increase automation.
Should you buy Flexigroup?
With a price to earnings ratio of just 10.1 and a forward (2016 FY) price to earnings ratio of just 9, investors would be silly not to give Flexigroup another look. The company stands to benefit from improving consumer and business spending, especially on technology products, and has room to make further acquisitions in the years ahead.
I'm already a shareholder and am considering topping up my holding at current prices to take advantage of the current dividend yield.
