If you already own a sizeable position in a Canadian index exchange-traded fund (ETF), especially the low-cost, passively managed broad market index ETFs tracking the S&P/TSX Composite Index or the S&P/TSX 60 Index, you already have significant exposure to Canada’s second-largest chartered bank, Toronto-Dominion Bank (TSX: TD).
For what it’s worth, the Canadian chartered bank stock and its close peers are tried-and-tested blue-chip financial stocks that have formed core portfolio holdings for individual investors for decades. However, over the past five years, TD Bank stock has been a lacklustre investment. Although it continues to pay dependable and growing dividends, shares haven’t gone anywhere for half a decade, given their 6.5% capital gain since 2019, which grossly underperformed the TSX Composite’s 34.2% rise.
Looking ahead, the mature bank stock may organically grow at the North American economy’s low single-digit annual growth rates. Bay Street analysts project a mere 1.8% earnings growth rate for TD stock over the next five years.
If you desire “more serious” growth and you’re still in the wealth accumulation phase of your financial life, there are better investment options for growth, even within the Canadian financial sector. You can afford to forget about adding more capital to TD stock in February 2024 and consider this AI-powered alternative.
Propel Holdings (TSX: PRL) is a favourite fintech growth play right now, and I’m bullish on its prospects to sustain a multi-year bull run while satisfying income investors’ cravings.
Buy Propel Holdings: An AI-powered fintech growth stock
Propel Holdings is a fast-growing Canadian financial technology company offering credit services to customers in Canada and the United States. Its artificial intelligence (AI)-powered Lending-as-a-Service (LaaS) platform powers its consumer-facing brands, including MoneyKey, CreditFresh, Fora, and a new program, Pathward, that should drive growth in 2024.
The $581 million fintech company is growing its lending business at breakneck speed. Propel Holdings grew revenue from $166 million in 2021 to $353 million over the past 12 months to September 2023. Net income more than tripled from $11 million to $44 million, and diluted earnings per share surged from $0.31 for 2021 to $0.90 per share over the past year.
Bay Street analysts project another strong growth streak ahead for Propel Holdings over the next two years, with a 67% earnings growth estimate for 2024 and a 50.4% EPS growth projection for 2025.
The North American market is responding very well to Propel Holdings’s credit offerings, and investors are having a good time. Shares have returned 125.3% in total returns over the past year, and PRL stock is up 29.8% so far in 2024.
Despite its recent run, the stock trades at a cheap forward price-to-earnings (P/E) multiple of 8.7, which compares favourably to an industry P/E of 18.6.
Growing dividends
Propel Holdings is keen on becoming a desirable dividend stock that competes significantly with TD stock for income investors’ attention. The company raised its dividend twice in 2023, from $0.095 per share in February to $0.105 per share paid in December of the same year. On February 6 this year, management announced a 14% dividend raise for Propel Holdings stock investors for 2024.
As a growing bonus for holding PRL stock, investors will receive $0.12 per share in quarterly dividends this year to yield 2.9% annually at current stock prices.
If you’d bought PRL stock a year ago at prices around $7.50 a share, the 2024 dividend could yield a more significant 6.4% and inject serious liquidity into your portfolio, enabling you to fund another growth-focused trade that compounds your total returns over the long term.
Management is evidently upbeat about the company’s future financial health and operational profitability as it captures market share in the underserved credit market.
