Canadian investors should consider holding dividend growth stocks in the TFSA (Tax-Free Savings Account). As any returns generated from qualified investments in the TFSA are exempt from Canada Revenue Agency taxes, you can earn a steady stream of dividend income and long-term capital gains in this registered account by investing in quality dividend stocks.
The TFSA was launched back in 2009 and has gained popularity among Canadians in the last 15 years, primarily due to its tax-sheltered status. While the maximum cumulative contribution room in the TFSA has risen to $95,000 in 2024, you can allocate around $15,000 to invest in dividend stocks such as Propel Holdings (TSX:PRL). Let’s see why.
Is Propel Holdings a good stock to buy right now?
Valued at $1.03 billion by market cap, Propel Holdings is a fintech company that has roughly tripled investor returns since its IPO (initial public offering) three years back. Propel’s online lending platform facilitates access to credit products, including installment loans and lines of credit, under brands such as MoneyKey and CreditFresh.
Propel is present in more than 30 states and provinces in North America and has originated more than $1.4 billion in loans to date. Its combined loan and advance balances have grown at a compound annual growth rate of 73% since 2019, driving sales and profit margins higher.
According to Propel Holdings, legacy financial institutions rely on credit scores, excluding most customers who need credit access. Propel estimates the global fintech lending market to be US$1 trillion. It also emphasized that more than 70 million underserved customers in North America are its target customers.
Propel believes its proprietary artificial intelligence-powered technology should help drive profitable growth and shareholder return in the upcoming decade.
A strong quarter in Q2 of 2024
Propel has increased its sales from $68 million in 2019 to $316.5 million in 2023. Despite a challenging lending environment and elevated interest rates, its sales rose by 47.3% year over year to $382.4 million in the last 12 months.
The company is also profitable, increasing its operating income from $6.3 million in 2019 to $60.6 million in 2023. In the last four quarters, its operating income totalled $81.6 million, indicating a healthy margin of 21.3%.
Since 2019, Propel has increased its sales at a compound annual growth rate of 47%, while earnings growth is much higher at 87%.
Propel should benefit from strong customer demand as interest rates move lower in the next 12 months. In the last two years, the cost of products offered through the Propel platform has already been reduced by 50%.
A growing dividend and a cheap multiple
Propel has increased its quarterly dividends from $0.38 per share in May 2023 to $0.52 in September 2024. A widening earnings base should allow the company to keep raising its dividends each year and enhance the effective yield over time.
Analysts tracking the TSX stock expect its adjusted earnings to expand from $1.35 per share in 2023 to $3.17 per share in 2025. So, priced at less than 10 times forward earnings, Propel stock is cheap and should deliver outsized gains to shareholders in the upcoming decade.
