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Can This Personal Loan Company Sustain Its Double-Digit Yield?

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Can This Personal Loan Company Sustain Its Double-Digit Yield?

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

OneMain Holdings (NYSE: OMF) is in the business of providing personal loans, mostly to borrowers with less-than-stellar credit ratings. It sounds like a risky business - the kind that might employ Rocky Balboa... before he got lucky against Apollo Creed. Twice.

Whatever OneMain is doing to write and collect on its loans is working, as net interest income - the difference between OneMain's borrowing costs and what it makes from lending - has been steadily rising.

Chart: OneMain's Net Interest Income
 

Rising interest rates, low unemployment and rising wages are a perfect combination for OneMain's borrowers to be able to pay back their loans and for the company to generate more profits and cash flow...

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The company pays a $1 per share quarterly dividend, which comes out to a 10% annual yield. It has raised its dividend every year since it began paying one in 2019.

It also paid special dividends in 2019, 2020 and 2021, but it did not pay one in 2022 (and hasn't so far this year). Though to be fair, the regular dividend has quadrupled since 2019.

But is OneMain's regular dividend safe?

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