I do not own this stock of Exchange Income Corp (TSX-EIF, OTC-EIFZF). One of my blogger reader 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.
When I was updating my spreadsheet, I noticed my spreadsheet has a lot of green ink and the company has done well for the shareholders. This is another stock that was an income trust in the past and changed to a corporation. They increased their outstanding shares each year except for 2018. The other thing is that outstanding shares have been increasing. They are up by 12 % per year over the past 10 years and 7.6% per year over the past 5 years.
This company did not cut dividends when it became a corporation from an income trust. They have been giving increases over the years and also working to lower their payout Ratios. Their dividend yields are still high but not as high as they were as an income trust. This is what has happened for all income trust. The current dividend yield is 5.68%, with 5, 10 and historical yields 7.02%, 7.30% and 7.43%. The growth dividends have been low. See the chart below.
The Dividend Payout Ratios are too high for EPS. The DPR for EPS for 2018 was 99% with 5 year coverage at 114%. The DPR for CFPS for 2018 was 31% with 5 year coverage at 38%. However, this used to be an income trust and these companies because of tax credits. It has been a bit of hit and miss, but they have been lowering their DPR payout ratios and should be in better shape probably in a couple of years.
Debt Ratios are basically fine. The long Term Debt/Market Cap Ratio is 0.82 in 2018 but with the second quarter of 2019 is 0.60. The Liquidity Ratio is 2.26 for 2018 with 5 year median at 1.93. The Debt Ratio is 1.46 with 5 year median at 1.52. The Leverage and Debt/Equity Ratios are a bit high at 3.17 and 2.17.
The Total Return per year is shown below for years of 5 to 15 to the end of 2018. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
A good portion of the total return in the past has been from dividends. However, corporations have lower yields that income trusts. So the portion the total return in the future from dividends will decline in the future.
|From||Years||Div. Gth||Tot Ret||Cap Gain||Div.|
The 5 year low, median, and high median Price/Earnings per Share Ratios are 12.04, 15.17 and 18.54. The corresponding 10 year ratios are 13.01, 15.80 and 19.77. The corresponding historical ratios are 12.04, 15.17 and 18.25. The current ratio is 14.66 based on a stock price of $38.56 and 2019 EPS estimate of $2.63. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $33.57. The 10 year low, median, and high median Price/Graham Price Ratios are 0.89, 1.15 and 1.39. The current P/GP Ratio is 1.15 based on a stock price of $38.56. This stock price testing suggests that the stock price is relatively reasonable and at the median.
I get a 10 year median Price/Book Value per Share Ratio of 1.69. The current P/B Ratio is 2.02 based on a stock price of $38.56, Book Value per Share of $19.05 and a Book Value of $596M. The current ratio is some 20% above the 10 year ratio. This stock price testing suggests that the stock price is relatively expensive.
I get an historical median dividend yield of 7.43%. The current dividend yield is 5.68% based on dividends of $2.19 and a stock price of $38.56. The current yield is 23% below the historical yield. This stock price testing suggests that the stock price is relatively expensive.
The 10 year median Price/Sales (Revenue) Ratio is 0.91. The current P/S Ratio is 0.92 based on 2019 Revenue estimate of $1,306M, Revenue per Share of $41.71 and a stock price of $38.56. The current ratio is 1% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and at the median.
Results of stock price testing is that the stock price is probably reasonable. A good test is the P/S Ratio test that says it is at the median. It is worrisome that the P/B Ratio test says that the stock price is expensive. The problem is the growth in Convertible Debentures and Deferred Shares (for employees). These two items are taking value away from shareholders. This means that the stock price may not be as reasonable as it appears.
Is it a good company at a reasonable price? This seems like a good company that is providing some good returns to shareholders. However, the shareholders value will probably be affected in the future by Convertible Debentures and Deferred Shares. I think caution is called for. However, generally the stock price seems reasonable.
When I look at analysts’ recommendations, I find Strong Buy (4), Buy (5) and Hold (2). The consensus would be a Buy. The 12 month stock price consensus is $45.82. This implies a total return of 24.51% with 18.83% from capital gains and 5.68% from dividends.
See what analysts are saying on Stock Chase. They think it is a buy. Christopher Liew on Motley Fool talks about the great dividends from this stock. A writer on Simply Wall Street does not like this company because of the high payout ratios, but does not seem to know it used to be an income trust. There is an interesting CBC article of 2017 which talks about what a short seller thought of the company. Jennifer Dowty on the Globe and Mail talks about stock as a TSX Breakout stock that yields 6%.
Exchange Income Corp is Canadian diversified acquisition-oriented corporation focused on opportunities in two sectors, aerospace, aviation services and equipment, and 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 Tuesday, September 03, 2019 around 5 pm.
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