- OneMain Holdings (OMF), a lender offering small personal loans, is currently a hot investment, with its shares trading near a buy point and a recently raised dividend.
- The company, which operates 1,400 branches in 44 states and offers loans online, lends funds to consumers with low credit scores at high interest rates.
- Despite being vulnerable to economic downturns, OneMain has benefited from favorable economic conditions, with shares soaring nearly 40% over the past six months.
OneMain Holdings (OMF) is currently a hot investment, with its shares trading near a buy point and a recently raised dividend. Despite being vulnerable to economic downturns, the company has benefited from favorable economic conditions.
OneMain Benefits From Favorable Conditions
When the economy performs better than expected, delinquencies remain low and the company’s stock performs well. Over the past six months, shares have soared nearly 40%. This comes in addition to a sizzling dividend yield of 8.1%. The company recently hiked its dividend to $1.04 quarterly when it disclosed first-quarter results on April 30. That quarterly report underscored favorable conditions for the financial company. Net interest income increased by $80 million while interest expenses rose by just $38 million. Delinquency rates for accounts past 30 days stood at 5.57%, slightly higher than the previous year but below the 6.16% reported in the prior quarter.
Vulnerable To Economic Downturns
A strong economy bodes well for continued capital gains and dividend payouts. But OneMain remains vulnerable to economic downturns due to the financial constraints of its client base. Further, any recession accompanied by a spike in delinquencies could pose significant challenges for the company. Debt rated at BB by S&P Global allows the company to borrow money at rates far under what it lends to consumers. Most recently that came at a coupon of 7.8%. Still, that rating puts OneMain’s debt in the junk category. While risk-seeking investors can take the chance, the stock should be avoided for more conservative individuals seeking capital preservation. Shares of OneMain currently trade in a flat base. They’re now testing a 51.65 buy point, according to MarketSurge.
Conclusion
OneMain Holdings has demonstrated strong performance in recent months, benefiting from favorable economic conditions. However, the company’s vulnerability to economic downturns and the financial constraints of its client base make it a riskier investment. While the company’s shares are currently a hot commodity, investors should consider these factors before deciding to invest.
