Exchange Income Corp

Sound bite for Twitter and StockTwits is: Dividend Growth Industrial. The current stock price is on the high side. Short sellers think that they cannot afford the dividends, but other analysts disagree. 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 article is available here.

One thing I noticed in updating my spreadsheet is that there is a lot of insider buying. Net Insider Buying is at 0.54% of market cap. This is high as you would expect it to be no more than 0.01% or 0.02%. This is always a positive sign that insider feel confident about their company. Buying is mostly by directors.

The dividend yield is very good with a current yield of 6.45%, a 5 year median dividend yield of 7.18% and a 10 year median of 7.98%. A problem is the Dividend Payout Ratio for EPS for 2016 is high at 93%. The 5 year coverage is worse at 152%. The DPR for EPS has been above 100% since 2008. It is expected to be around 107% for this year.

The DPR for CFPS is also high. It is better for 2016 at 39%, but the 5 year coverage is 46%. The DPR for CFPS has been above 40% since 2007. The DPR for CFPS is expected to be around 37% in 2017.

Many analysts think that the dividends will not be cut and that DPR will decline over the next few years. The last increase was in 2016 and was for 4.5%. However, overall the dividends have increased between 2015 and 2016 by 10%. It would seem that management feels that they can afford the current dividends.

The Return on Equity is low. The ROE for 2016 is good at 12.7%, but the 5 year median is just 8.6%. It has had ROE at or above 10% only 3 times in last 10 years and once in last 5 years. The Comprehensive Income ROE is a bit lower but not significantly so. The Comprehensive Income ROE for 2016 is 11.2% with a 5 year median of 8.4%.

The 5 year low, median and high median Price/Earnings per Share Ratios are 18.13, 20.58 and 23.03. The 10 year corresponding ratios are 13.66, 16.59 and 20.89. The historical ratios are 12.52, 15.72 and 18.25. Generally speaking a rising stock price and rising P/E Ratios is not sustainable. The current P/E Ratio is 16.53 based on a current price of $32.56 and 2017 EPS estimate of $1.97. This stock price testing suggests that the stock price is relatively reasonable and around the median.

I get a Graham Price of $27.91. The 10 year low, median and high median Price/Graham Price Ratios are 0.89, 1.13 and 1.34. The current P/GP Ratio is 1.17 based on a stock price of $32.56. This stock price testing suggests that the stock price is relatively reasonable but above the median.

I get a 10 year Price/Book Value per Share Ratio of 1.60. The current P/B Ratio is 1.85 based on a stock price of $32.56 and Book Value of $543.28 and BVPS of $17.58. The current P/B Ratio is some 16% above the 10 year median P/B Ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.

The dividend yield test is not the best for companies that used to be income trusts. That is because as income trusts the dividend yield reached heights that they would never reach again. If you look at this median dividend yield since 2011 then it is 7.30%. The current dividend is 6.45% based on a stock price of $32.56 and dividends of $2.10. The current dividend yield is some 11.7% lower than this dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.

The 10 year median Price/Sales (Revenue) Ratio is 0.77. The current P/S Ratio is 1.01 based on 2017 Revenue estimate of $995M, Revenue per Share of $32.19 and a stock price of $32.56. The current ratio is some 32% above the 10 year ratio. This stock price testing suggests that the stock price is relatively expensive.

When I look at analysts' recommendations, I find Strong Buy (2), Buy (7) and Hold (2). Most are Buy recommendations and the consensus recommendation is a Buy. The 12 month stock price consensus is $42.73. This implies a total return of 37.68% with 31.23% from capital gains and 6.45% from dividends.

Kenneth Searles gives some technical information on Melville Review for this stock. He is basically saying that the stock is neither overbought nor oversold. Martin Cash in July of 2017 on the Winnipeg Free Press talks about short selling on this stock because they doubt the company's ability to continue its generous dividend. They have a point as they are paying over 100% of EPS on dividends. This is not sustainable. However, Terence Corcoran on Financial Post says other analysts dispute short-seller Marc Cohodes' analysis. See what analysis are saying about this stock on Stock Chase. They mostly like it and feel the short sellers are wrong.

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 .

The last stock I wrote about was about was Alimentation Couche-Tard Inc. (TSX-ATD.B, OTC-ANCUF)... learn more. The next stock I will write about will be ATCO Ltd. (TSX-ACO.X, OTC- ACLLF)... learn more on Friday, September 8, 2017 before 8:30 am. Tomorrow on my other blog I will write about Something to Buy, September 2017... learn more on Thursday, September 07, 2017around 5 pm.

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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