Will this dividend stock soar after a 9% rise in sales?

International Personal Finance (LSE: IPF) has released a positive trading update for the third quarter of the year. It shows that the company is making good progress and is on track to meet its full-year goals. But should you add it to your portfolio right now?

IPF’s third quarter saw growth in its credit issued of 9%. This was split between a growth in home credit of 5% and IPF digital growth of 44%. This was largely driven by a return to Mexico as well as a continued strong performance in Southern Europe. It helped to offset challenges in the Czech Republic, while Poland-Lithuania returned to modest growth after contracting in the first half of the year.

IPF’s customer numbers increased by 1%, a figure that was boosted by a 45% rise in its digital customers. Digital remains a key growth area for the business and is likely to become increasingly important over the medium-to-long term. IPF’s collections performance is sound, with impairment as a percentage of revenue being 26.1%. This is at the lower end of its target range of 25%-30%.

IPF’s dividend appeal remains high. It currently yields 4.1% from a dividend that’s well covered 2.4 times by profit. This shows that it has the potential to increase dividends at a faster rate than profit growth while maintaining a healthy dividend coverage ratio. IPF is forecast to increase its bottom line by 8% next year. Alongside a price-to-earnings (P/E) ratio of 10.2, this shows that it offers excellent value for money given its near-term outlook.

High valuation

The same can’t be said for financial services peer Hargreaves Lansdown (LSE: HL). It trades on a P/E ratio of 29, which shows that its shares could be due for a derating over the medium term. That’s especially the case since Hargreaves Lansdown is expected to grow its bottom line by just 7% this year. While this is in line with the growth rate of the wider index, it appears to be too low to justify such a high valuation.

Hargreaves Lansdown also lacks income appeal compared to IPF. Hargreaves Lansdown has a yield of 3.1%, which is lower than IPF’s 4.1% yield. Although Hargreaves Lansdown could increase dividends in line with profit growth, it pays out 89% of profit as a dividend. This provides it with less scope to raise dividends than is the case for IPF, which makes IPF the far superior income play.

While IPF’s earnings could come under pressure in the short run, it remains a sound buy for the long term. It offers a high, well-covered yield that could increase at a faster pace than its earnings. And with the company having a low valuation, it has a wide margin of safety that could be a major ally in an uncertain investment world.

But will IPF make you a millionaire?

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.