Credit Corp Group Limited (ASX: CCP) shares have performed strongly this year, up 65% year-to-date. Here are two reasons Credit Corp shares have a spot on my watchlist.
About Credit Corp
Credit Corp is Australia’s largest debt buyer, called purchased debt ledgers (PDL), and collector. The company purchases past-due consumer and small business debts from major banks, finance companies, telecommunication companies and utility providers in Australia, New Zealand and the USA. It has been operating for over 25 years and also runs the ‘Wallet Wizard’ short term lending brand.
1. Dominant Market Position
I believe Credit Corp’s position as the largest debt buyer and collector in Australia is a huge competitive advantage and provides the company with a lot of opportunities.
With 1.6 million customers globally, Credit Corp is also rapidly moving into the US and New Zealand markets, particularly with the recent acquisition of Baycorp Holdings Pty Limited, a debt-purchasing operator based in New Zealand.
Strong growth in the US is expected in FY20 with a 40% increase in investment through 2019 and a second site expected to be operational by mid-2020.
This dominance across markets is reflected in the company’s return on equity (ROE), which is usually above 20%. This suggests Credit Corp is very effective at investing in value-generating operations.
2. Dividends
Credit Corp is typically not mentioned when it comes to dividend shares because the current trailing dividend yield is only around 2.3%. However, Credit Corp dividends are fully franked and have been growing consistently for several years now. Franking credits are explained below.
Between 2015 and 2019, dividends have grown from 44 cents per share (cps) to 72 cps, with the largest growth in any one year around 16%.
While the yield is still lower than many other dividend shares like Commonwealth Bank
(ASX: CBA) or Westpac (ASX: WBC), Credit Corp is building a very strong dividend track record and may soon become one of the favourite dividend shares.
Buy, Hold or Sell?
Credit Corp has seen very strong growth in its share price this year, which reflects the growth in the underlying business.
I think Credit Corp is a strong business, however, I’d like to do more research on the company before deciding if the current valuation is justified. For now, it’ll stay on my watchlist.
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Disclosure: At the time of writing, Max does have a financial interest in any of the companies mentioned.
