Exchange Income Corp.

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Sound bite for Twitter and StockTwits is: Price probably reasonable. I am not much interested in this stock for two reasons. First I owned a similar stock call ONEX which was into making money by buying and selling companies. I did not make much money here. Also, I do not like the aviation sector as I do not think that aviation can make money in the longer term. See my spreadsheet on 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 is not a normal stock company. It is more like a hedge fund. Revenue is not much important as this can change when the company buys and sell other companies. What I think is important over the long term is what earnings, cash flow and distributions this company can produce for its shareholders.

The dividend yield is quite high. The dividend growth used to be good but has not been good for a while until this year. The current dividend yield is 7.89% based on a stock price of $24.35. The 5 and 10 year dividend growth is at 1.6% and 12.1% per year. The most recent dividend increase was in 2015 and it was for 10.3%.

As you can see the dividend growth over the past 5 years was very low. This is probably because the Dividend Payout Ratios was too high. The DPR for EPS for 2014 was 455%. The 5 year median DPR is 160%. This is expected to drop to 109% this year and around 89% in 2016.

This company also gives out a Distributable Cash value based on Free Cash Flow and the DPR on this basis was 132% in 2013 and 106% in 2014. However if you look at the FCF per share for the 12 month period to the end of the second quarter the DPR is 81%.

Shareholders have done well over the past 5 and 10 years with total return at 15.21% and 19.50% per year. The portion of this total return attributable to dividends is 8.44% and 10.72%. The portion of this total return attributable to capital gains is 6.77% and 8.78%.

The outstanding shares have increased by 15.9% and 33.5% per year over the past 5 and 10 years. Revenue growth is moderate to good. Cash Flow growth is good. For Distributable Cash growth is nonexistent to low and for Earnings growth is non-existent.

Revenue has grown by 20.8% and 39.3% per year over the past 5 and 10 years. Revenue per share has grown at 4.2% and 4.4% per year over the past 5 and 10 years. Revenue is not a good indicator of growth as revenue can change a lot as this company buys and sells companies.

The problems are Distributable Cash and EPS. DC is down by 10.8% and up by 2.6% per year over the past 5 and 10 years. EPS is down by 23.3% and 7.4% per year over the past 5 and 10 years. However, both these items have had good growth over the 12 month period to the end of the second quarter compared to the 12 month period to the end of 2014. On this basis DC has grown 49% and EPS by 113%.

Cash Flow has grown by 28% and 9.4% per year over the past 5 and 10 years. CFPS has grown by 10.5% and 8.1% per year over the past 5 and 10 years. Analysts expect CFPS to grow by 16% in 2015. However if you compare the 12 month period to the end of the second quarter and to the 12 month period to the end of 2014, CF is down by 24%.

The 5 year low, median and high median Price/Earnings per Share Ratios are 18.13, 20.58 and 23.03. The corresponding 10 year values are lower at 13.66, 16.59 and 19.51. The current P/E Ratio is 14.76 based on a stock price of $24.35 and 2015 EPS estimate of $1.65. This stock price testing suggests that the stock price is relatively reasonable and below the relative median.

I get a Graham Price of $22.48. The 10 year low, median and high median Price/Graham Price Ratios are 0.89, 1.08 and 1.26. The current P/GP Ratio is 1.08 based on a stock price of $24.35. This stock price testing suggests that the stock price is relatively reasonable and at the relative median.

The 10 year Price/Book Value per Share Ratio is 1.55. The current P/B Ratio is 1.79 based on BVPS of $4.25 and a stock price of $24.35. The current P/B Ratio is some 15.4% higher than the 10 year ratio. This stock price testing suggests that the stock price is relatively reasonable but above the relative median.

The 5 year median dividend yield is 7.43% and the current dividend yield is 7.89% based on dividends of $1.92 and a stock price of $24.35. This stock price testing suggests that the stock price is relatively reasonable and below the relative median. However, the 10 year median dividend yield is 9.71% and this is 19% higher than the current dividend yield and suggests that the stock price is getting relatively expensive.

When I look at analysts' recommendations they are all over the place. Recommendations are Strong Buy, Buy, Hold and Underperform. The consensus would be a Buy as most of the recommendations are a Buy. The 12 month stock price consensus is $30.70. This implies a total return of 33.95% with 26.08% from capital gains and 7.89% from dividends.

According to OCTA Finance, RBC reaffirms their $32.00 stock price. According to Forbes, Stock Channel names this stock in their top 25 dividend stocks.

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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