Exchange Income Corp.

I do not own this stock of Exchange Income Corp. (TSX-EIF, OTC-EIFZF). One of my blogger readers suggested this stock as one to review. There was an interesting article about this stock in the G&M in May 2013. This article suggested that the company had a hefty yield with an acquisition tailwind. This article is available here.

This company has been on the stock exchange since 2004. They have been inconsistent in increasing the dividends. The dividend increases were better before 2008 than after that date. The 5 and 9 year dividend growth is at 2.22% and 6.18% per year. The last time I checked inflation it was running at 1.50% over the past 10 years and slightly lower over the past 5 years.

The dividend yield is still very high on this old income trust company. The current dividend yield is running at 8.51% currently. It was expect that income trust companies would end up with dividend yields between 4 and 5% from increases in stock prices and/or dividend decreases. The company did not decrease their dividends on the change to a corporation; they have just really slowed the dividend increases.

The Dividend Payout Ratios are still very high for this company. The 5 year median DPR for EPS is at 132% and the one for 2013 was at 400%. It is expected to be around 158% in 2014. The DPR for CFPS is better with a 5 year median of 58% and the DPR for 2013 at 58%.

The total return for shareholders has been quite good. The 5 and 10 year total return is at 19.67% and 20.41% per year with 8.85% and 8.35% per year from capital gains and 10.82% and 12.07% per year from dividends.

The outstanding shares have increased by 17% and 42% per year over the past 5 and 10 years. The shares have increased due to Debenture Conversions, Stock Options, DRIP and Share Issues. Revenues and Cash Flows have increased nicely, but Earnings have not. Because of big increase in outstanding shares, the most important increases are in the per share values.

Revenues have increased by 46% and 55% per year over the past 5 and 9 years. However, Revenue per Share has only increased by 24% and 13% per year. Cash Flow has increased by 28% and 45% per year over the past 5 and 9 years. CFPS has increased by 9% and 5.8% per year over the past 5 and 9 years.

Unfortunately, although earnings are up EPS is down. The Net Income has increased by 23 and 25% per year over the past 5 and 9 years. However, EPS is down by 5.3% and 6.9% per year over the past 5 and 9 years.

Return on Equity only broke through the 10% mark once in the past 5 years and that was 5 years ago. The ROE for 2013 was just 2.9% and the 5 year median was at 9%. The ROE on comprehensive income was a bit better for 2013 at 5.4% and its 5 year median is 8.5%.

The 5 year low, median and high median Price/Earnings per Share Ratios are 14.62, 17.81 and 20.99. The 10 year values are lower at 11.77, 13.40 and 15.03. The current P/E Ratio is 18.61 based on a stock price of 19.73 and 2014 earnings estimates of $1.06. This stock price testing suggests that the stock price is relatively reasonable.

However, the P/E Ratios have been moving up quite a bit and this generally does not suggest a stock is at a good price. Although a P/E Ratio of 18.61 is not high, however, it does not point to a cheap stock. Also, the EPS estimates are an increase of some 152% over that for 2013. If you look at EPS for the last 12 months, it is lower than the 12 months earnings to end of 2013.

I get a Graham Price of $17.49. The 10 year Price/Graham Price Ratios are 0.76, 0.89 and 1.00. The current P/GP Ratio is 1.13 based on a stock price of $19.73. This stock price test suggests that the stock price is relatively high.

The 10 year Price/Book Value per Share Ratio is 1.36. The current P/B Ratio is 1.54 a value some 13% higher. This suggests that the stock price is relatively reasonable but a bit on the high side of the reasonableness range.

The 5 year median Dividend Yield is 7.43% and the current Dividend Yield is some 15% higher at 8.51%. This stock price test suggests that the stock price is reasonable.

When I look at analyst's recommendations, I find Strong Buy, Buy and Hold Recommendations. The consensus recommendation would be a Buy. The 12 month stock price consensus is $25.80. This implies a total return of 39.28% per year with 30.77% from capital gains and 8.51% per year from dividends.

In an G&M article, the CEO challenges critic over the earning power of his company. The negative reporting from G&M is here. Some people think that the dividend is in jeopardy.

Sound bit for Twitter and StockTwits is: I would like better EPS growth. It would seem that the company is not producing good growing EPS. In the long term, the production of good growing EPS is the most important. See my spreadsheet at eif.htm.

I will have only one entry for this stock as I must do on some stock because I cover too many stocks to do double entries on all that I follow.

Exchange Income Corporation was created to invest in profitable, well-established companies with strong cash flows operating in niche markets in Canada and/or the United States and to distribute stable monthly cash dividends to its shareholders. The Company currently owns subsidiaries in two niche business segments, aviation and specialty manufacturing. Its web site is here Exchange Income Corp.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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