Invest $5,000 in This Dividend Stock for $168 in Passive Income

Propel Holdings (TSX:PRL) is a Canadian fintech company that recently secured approval from Puerto Rico’s Office of the Commissioner of Financial Institutions to establish Propel International Bank as a wholly owned subsidiary. This strategic shift will allow Propel to expand beyond its current lending platform.

Valued at a market cap of $985 million, Propel stock has returned 182% to shareholders in dividend-adjusted gains since its initial public offering in late 2021. Despite these outsized returns, the TSX stock is down 40% from all-time highs, and offers you a tasty dividend yield of 3.5%.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYPropel Holdings$25.05200$0.21$42Quarterly

Investing $5,000 in this dividend stock will help you purchase 200 shares and generate $168 in annual dividend income. However, analysts forecast the dividend to increase to $1.34 per share by 2027, increasing the annual dividend income to $268.

Over the next 20 months, Propel’s yield-at-cost should expand from 3.5% to 5.4%, which is exceptional.

Propel Bank widens its competitive moat

Propel’s new International Financial Entity license does more than add “bank” to the company’s name. Operating under U.S. banking regulations while headquartered in Puerto Rico, the structure gives Propel room to diversify beyond consumer lending into traditional banking products.

The bank will launch in the first half of 2026 with an experienced management team already identified. Noah Buchman, Propel’s President and Chief Revenue Officer, will serve double duty as the bank’s President while the operation leverages Propel’s existing AI-powered platform.

Propel also announced a partnership with Column N.A., a nationally chartered bank, to launch Freshline – an unsecured personal loan product targeting consumer segments and geographies it doesn’t currently serve.

Set to launch in Q1, the product operates under Propel’s CreditFresh brand while the company provides servicing and forwards loan economics to third-party partners. Column brings a national footprint and modern banking infrastructure that Propel can leverage immediately.

Propel’s competitive edge comes from evaluating credit applicants beyond traditional scores. The company’s AI platform has facilitated over one million loans totalling more than $2 billion since inception, serving consumers in the U.S., Canada, and the UK through its Fora Credit, CreditFresh, MoneyKey, and QuidMarket brands.

The third quarter showed the platform’s resilience. Despite tightening underwriting in response to economic pressures, Propel delivered record revenue of $152.1 million, up 30% year-over-year, while maintaining credit performance within target ranges, the company reported.

The dividend story that matters

Propel’s dividend history tells you everything about management’s priorities. The company has raised its payout nine consecutive times since going public, with the most recent increase bringing the annual dividend to $0.84 per share.

That works out to a 3.5% yield at current prices, which is attractive for a growth-oriented fintech.  During the company’s Q3 earnings call, management emphasized its commitment to returning capital to shareholders even while investing heavily in growth initiatives.

The board approved the latest dividend increase despite the company pouring resources into AI infrastructure, geographic expansion, and new product development.

No dividend stock comes without tradeoffs. Propel operates in the subprime lending space, serving consumers traditional banks often reject. That means higher credit risk during economic downturns.

Propel acknowledged this risk during Q3 earnings, noting a “modest uptick in delinquencies” that prompted tighter underwriting. Management’s response was to prioritize credit quality over growth, which will impact near-term expansion.

Regulatory risk looms larger now with bank operations coming online. More oversight could add compliance costs and potentially impact product launches. The Propel Bank structure also adds operational complexity that could strain resources during the ramp-up phase.

Is Propel stock undervalued?

Analysts tracking the TSX stock forecast adjusted earnings to grow from $1.64 per share in 2024 to $3.27 per share in 2027. If Propel stock is priced at 10 times forward earnings, it could surge 80% from current levels over the next 12 months.

The post Invest $5,000 in This Dividend Stock for $168 in Passive Income appeared first on The Motley Fool Canada.

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Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Propel. The Motley Fool has a disclosure policy.