How to Play America’s Widening Income Gap
When it comes to America’s income levels, we continue to be a nation of haves and have-nots—the latter being the majority. There are about 48 million Americans collecting food stamps and many more are struggling to pay rent and put food on the table. In fact, we are now also seeing once-middle-class families going to food banks.
The government wants you to believe all is great, but that’s not true for everyone. Jobs are being created, but the majority are low-income service jobs that don’t require higher-level education. Yet highly educated workers are taking jobs that are far below their skill group and experience just to make ends meet.
As you all know, the income gap between the upper end—or the one percent—and the bottom end has been widening for years, if not decades.
The median family income declined to an inflation-adjusted $45,800 in 2010, compared to $49,600 in 2007, according to the Survey of Consumer Finances published by the Federal Reserve. The survey also suggested the top 10% of households made an average income of $349,000 in 2010 and had a net worth of $2.9 million.
Going back to 1962, the top one percent of income earners had a net worth of 125-times the median household income, according to the Economic Policy Institute. More recently, the gap surged to around 288-times the median household income in 2010 and is likely much worse now given the five-year bull market that has produced many new millionaires and has driven up the worth of the top one percent.
There is very little help for the financially unfortunate. Banks don’t care about this group.
Yet there has been a rise in the number of institutions providing services to the lower-income groups and those who really need to monitor their budgets.
One such company is small-cap Green Dot Corporation (NASDAQ/GDOT), which provides the popularreloadable prepaid debit cards and other cash-loading and transfer services at more than 90,000 retail locations in the country. The company is a viable option to traditional banks and services about 4.71 million active accounts as of June 30.
Major mass market retailers offering the company’s products include Wal-Mart Stores Inc. (NYSE/WMT), Family Dollar Stores, Inc. (NYSE/FDO), Dollar General Corporation (NYSE/DG), Dollar Tree, Inc. (NASDAQ/DLTR), and The Home Depot, Inc. (NYSE/HD).
Better yet, Green Dot and Wal-Mart just hooked up on a venture called “GoBank” through which the company will provide a no-fee checking account through the retailer. The nationwide service offers no overdraft charges and requires no minimum balance or monthly fees as long as there’s a qualifying deposit.
Chart courtesy of www.StockCharts.com
Green Dot has beaten the Thomson Financial consensus earnings-per-share (EPS) estimates in seven of the last eight quarters, including three of the past four quarters.
Looking ahead, the company is estimated to report revenue growth of 6.3% for$616.84 million this year followed by 20.4% to $745.07 million in 2015, according to Thomson Financial.
Annual earnings are estimated to come in at $1.31 per diluted share this year and $1.69 per diluted share in 2015, according to Thomson Financial.
So if you are looking for a play on the widening income gap and financial servicesfor those whoare forgotten by the regular banking system, you may want to take a closer look at a company like Green Dot.