OneMain Holdings (NYSE: OMF) , a leading provider of personal loans and insurance products to subprime customers, stands out as a growing dividend stock with an attractive valuation. With a dividend yield of 8.40% and a P/E ratio under 10, OMF’s growing dividends are backed by reliable profitability - allowing the company to invest in growth while rewarding shareholders in the process.

In Q1 2024, the company reported an EPS of $1.45, exceeding expectations of $1.38, and revenue of $1.17 billion. The company grew managed receivables (the total value of loans the company owns) 6% year-over-year to $22 billion . In addition, the operational expense ratio improved from 7.1% a year ago to 6.6% in the past quarter, highlighting effective cost control.

The quarter's results were driven by a 7% increase in interest income to $1.2 billion. Despite higher interest expenses and increased net charge-offs, the rise in interest income significantly boosted OneMain's bottom line. The company maintained stable net interest margins at 4.9%, though the net income margin dipped to 11.5% from 12% in Q4 2023 due to provisions for finance receivable losses.

CEO Douglas Shulman attributes this growth to expanded product offerings and a robust balance sheet, with managed receivables expected to reach $24 billion by year-end, including contributions from the Foursight acquisition, an auto financing operation.

Following the earnings report, OMF's stock initially rose, rallying 5% from the previous day’s close, but has since traded lower, providing a buying opportunity for investors. Q1 2024 earnings largely mirrored that of its competitors: Ally Financial (NYSE: ALLY) also beat EPS expectations, while Synchrony Financial (NYSE: SYF)  beat revenue estimates by 25%, suggesting bullishness for the industry as a whole.

Analysts took note of OneMain’s outperformance and adjusted their price targets accordingly. Royal Bank of Canada, Wells Fargo 9 (NYSE: WFC) , and JMP Securities raised their price targets to $61, $53, and $62, respectively. The company projects full-year revenue growth of 6% to 8%, with managed receivables expected to hit $24 billion for the full year. Net charge-offs are anticipated to be between 7.7% and 8.3%, peaking in the first half of 2024. Management also aims to keep the operating expense ratio around 6.7%, reflecting caution in uncertain times.

When looking at dividend stocks, it is crucial to ask two questions:

1. Is the dividend sustainable?
2. Is the dividend preventing the company from investing more aggressively in growth?

The answer to both of these questions is bullish for the stock and reaffirms that OMF investors get paid while they wait for the company to realize its full growth potential.

Over the past five years, OneMain has demonstrated a strong commitment to returning value to shareholders through regular and special dividends, notably increasing dividends to $4.00 per share in 2023 and to an annualized $4.16 in Q1 2024.

These dividends, supported by robust cash flows, are complemented by active share buybacks, with $3.5 billion paid out in dividends in the last five years and $780 million in share repurchases. Despite economic challenges, OneMain has maintained steady revenue growth and stable earnings, beating EPS expectations in seven of the last ten quarters.

The Q1 2024 earnings report also noted a 10% year-over-year decline in loan originations to $2.5 billion due to strategic credit tightening and increased pricing to ensure high-quality, profitable loans. While some can view this as a setback, it is prudent for the company to tighten lending standards when the economy is uncertain. The company still achieved 7% year-over-year revenue growth - this cautious approach merely prioritizes long-term stability and profitability.

Despite somewhat elevated short-term delinquency rates at 2.7% and economic uncertainty affecting subprime customers, OneMain's extensive customer base of over 3 million provides a solid foundation for growth. Utilizing over 1,000 variables to make precise lending decisions and growing both dividends and earnings, OneMain demonstrates resilience and presents an attractive opportunity for dividend investors.