When the government throws enormous amounts of money at people, they spend it. It’s not complicated. And that principle is the biggest reason to recommend Plano, Texas-based Rent-A-Center Inc. (RCII), explains Mike Larson, editor of Safe Money Report.
Rent-A-Center offers a wide range of products on a lease-to-own basis. It does so through approximately 1,950 company-owned stores and another 460 franchised locations in the U.S., Mexico and Puerto Rico.
Unlike higher-end retailers, Rent-A-Center primarily caters to a credit-challenged customer base. These customers wouldn’t otherwise be able to stock their homes with big-screen televisions, personal computers, living room sets and more.
Furniture and accessories are Rent-A-Center’s biggest product category, at around 41% of sales, followed by consumer electronics at 25% and appliances at 23%.
The company is also expanding its third-party “fintech” business via the ramping up of its "Preferred Dynamic" platform and its December acquisition of Acima Holdings LLC for $1.65 billion. The moves allow customers at non-Rent-A-Center stores to use Apple (AAPL) or Google (GOOGL) platforms.
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Customers can then use that money to acquire whatever they want via lease transactions executed through the apps. This helps Rent-A-Center increase revenue without the expenses associated with opening and staffing additional stores.
Third-quarter results show the company is pretty much firing on all cylinders. Adjusted profit per share more than doubled to $1.04 from 47 cents in the year-earlier period.
Sales climbed 9.6% to $712 million. At the same time, credit loss rates (due to missed payments or shoplifting) dropped sharply to just 2% of revenue.
With more stimulus of all sorts coming down the pike — and the vaccine rollout likely to bring down unemployment later in 2021 — those credit costs should remain relatively tame.
Lastly, there’s a lot to like here for income-seeking investors. Rent-A-Center just raised its quarterly dividend by almost 7% to 31 cents per share. That’s good for an indicated yield of 3.% at recent prices. The company also bought back 1.46 million shares last year.
Overall, more stimulus, smart management and a generous yield make this retailer a great buy for our "Dynamic Income" model portfolio.
