Credit bureau Equifax looks for growth in overseas markets

Question: I would like your opinion of my shares of Equifax Inc., which I have owned for some time.

Answer: Equifax is one of the three major credit bureaus, along with TransUnion and Experian, whose core business is helping lenders assess the creditworthiness of prospective borrowers.

There is little price competition in the industry, and it would be nearly impossible for a new competitor to amass comparable databases.

As a result, the company is highly profitable, especially during strong economic periods, when many loans are being made.

But with the economy weak and banks not lending much, Wall Street analysts on average project that Equifax’s earnings will decline 1% this year and increase 10% next year, with an estimated five-year annualized growth rate of 10%.

The company says it has seen some improvement in market conditions and has expressed optimism about growth through year-end. The firm sells credit information to nonfinancial companies, governments and individuals as well as to financial firms.

International markets hold promise for long-term expansion because credit reporting is not as widely used abroad as it is in the U.S.

Equifax operates in 15 countries and has had strong growth in Latin America this year, but only one-fourth of its overall revenue comes from outside North America. The company is expanding into Russia, Brazil, India and other developing markets that offer growth opportunities but also some currency and political risks.

Shares of Equifax are down 2.8% this year after climbing 16% last year. Its second-quarter earnings were up 20% this year, an increase attributed to a pickup in business and the introduction of new products.

The company has expanded its suite of tools that offer defenses against identity fraud. The products are designed to quickly verify names and Social Security numbers and to detect suspicious activities and common schemes.

The consensus rating of Wall Street analysts on Equifax shares is “buy,” according to Thomson Reuters. That represents two “strong buy” ratings, four “buys” and three “holds.”

Question: I am looking for a steady fund and wonder what you think of Vanguard Dividend Growth Fund.

Answer: This large-cap, blue-chip fund seeks to invest in reliable companies that have a history of dividend increases and the wherewithal to keep the increases coming.

The $3.4-billion Vanguard Dividend Growth Fund has gained 8.6% in total return in the last 12 months to rank in the top eighth of funds that invest in so-called growth and income large-cap stocks. Its three-year annualized decline of 2.3% places it in the top 5% of its peers.

“I like the strategy, low expense ratio and the fact that it has blue-chip holdings,” said Dan Culloton, analyst with Morningstar Inc. “This is a core holding that could be complemented by a small-cap fund to fill things out.”

As much as 10% of the fund’s assets can be put in companies that don’t pay dividends but have the potential to do so.

This fund requires a $3,000 minimum initial investment and has a low annual expense ratio of 0.38%. There is no sales charge when investing in the fund.

Andrew Leckey answers questions only through the column. E-mail him at yourmoney@tribune.com.