OneMain Holdings Inc. (OMF) is one of the most commonly requested stocks for my Safety Net. I evaluated the stock’s dividend safety in 2022, giving it a grade of “B,” and then covered it again last September, upgrading it to an “A.” But what about now? Here’s my take, notes Marc Lichtenfeld, chief income strategist at Wealthy Retirement.
For much of last year, it paid a double-digit yield, though a rise in the stock price late in 2023 brought the yield down to 8%. (The dividend itself stayed intact, but the higher stock price caused the yield to shrink.)
OneMain lends money to subprime borrowers, a category that currently includes 100 million Americans. The company operates in 44 states and has been around since 1912.
Though OneMain is 112 years old, its dividend history only goes back to 2019. But it has raised its dividend every year since then, and it paid special dividends in 2019, 2020, and 2021.
It currently pays a $1 per share quarterly dividend. But should investors expect to continue to receive at least $1 each quarter?
Because OneMain is a lender, we look at net interest income, or NII, to evaluate how much cash the company is bringing in. NII has risen in each of the past five years. But this year, it is expected to fall slightly.
In 2024, NII is forecast to drop from $3.6 billion to $3.3 billion – its lowest level since it totaled $3.2 billion in 2019. A decline in cash flow is an automatic ding against a company’s dividend safety rating, as it can sometimes be a warning of a change in the company’s business.
Fortunately for shareholders, OneMain paid out just $480 million in dividends last year for a very sustainable payout ratio of just 13.5%. This year, Wall Street estimates that the company’s total dividends paid will inch up to $481 million, which would cause the payout ratio to crawl to 14.4%. That’s still extremely low.
OneMain should have absolutely no problem paying its dividend, and there is plenty of room for another raise or special dividend.
Just keep an eye on the company’s NII. If it falls this year and then is projected to decline again next year, it could be the start of a concerning trend. But until that happens, OneMain’s big dividend is safe.
Recommended Action: Buy OMF.
