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.
When I was updating my spreadsheet, I noticed that there was a lot of activity in Share capital. Changes were for the following items with a total increase of 3,387,231 shares. This is unusual as most companies have at most one or two items going into share outstanding changes.
- Issued upon conversion of convertible debentures 780,112
- Issued under dividend reinvestment plan 212,625
- Shares cancelled under NCIB (58,600)
- Issued under employee share purchase plan 49,265
- Issued under deferred share plan 18,220
- Issued under First Nations community partnership agreements 9,039
- Issued to L.V. Control Mfg. Ltd. vendors on closing 134,000
- Issued to Advanced Window. Inc. vendors on closing 103,000
- Prospectus offering, October 2019 2,139,000.
The dividend yields are high with dividend growth low. The current dividend yield is high (7% or higher) at 7.13%. The 5 year median dividend yield is good (5% and 6% ranges) at 6.16%. The 10 year and historical median dividend yields are high at 7.10% and 7.42%. The dividend growth has mostly been low (under 8%) with the dividend growth for the past 5 years at 5.67% per year and the last increase done in 2019 was for 4.11%
The Dividend Payout Ratios (DPR) could be improved for EPS. The DPR for 2019 is 89% with 5 year coverage at 96%. This is high. Also, the DPR for 2020 is expected to be 285% with 5 year coverage at 109% and DPR for 2021 is expected to be better at 59% with 5 year coverage at 107%. The company used to be an income trust and only in 2016 was DPR for EPS first below 100%. It has stayed in the 90% range since then.
The DPR for CFPS for 2019 is 29% with 5 year coverage at 35%. These DPRs are good. The DPR for 2019 for Free Cash Flow is 58% with 5 year coverage at 62%. These are a bit high. The FCF I am using comes from the company, but none of the sites I looked at (Morningstar, Market Screen) agree on what the FCF is. This is often the problem with FCF.
Debt Ratios are fine, but some could improve. The Long Term Debt/Market Cap Ratio for 2019 is 0.46. It increases to 0.74 in 2020 because debt has gone up 11% and the Stock Price has gone down 31%. The Liquidity Ratio is very good at 2.10. The Debt Ratio is fine at 1.47, but I prefer it to be 1.50 or higher. The Leverage and Debt/Equity Ratios are a little high at 3.11 and 2.11 as I prefer them to be below 3.00 and below 2.00.
The Total Return per year is shown below for years of 5 to 16 to the end of 2019. 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.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2014 | 5 | 5.67% | 20.91% | 14.01% | 6.90% |
| 2009 | 10 | 3.59% | 21.96% | 13.22% | 8.74% |
| 2004 | 15 | 9.88% | 21.39% | 11.40% | 9.99% |
| 2003 | 16 | 35.65% | 16.95% | 18.70% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 11.60, 15.07 and 18.41. The corresponding 10 year ratios are 13.01, 15.80 and 19.77. The corresponding historical ratios are 11.82, 15.12 and 18.33. The current P/E Ratio is 39.98 based on a stock price of $31.98 and EPS of $0.80. This stock price testing suggests that the stock price is relatively expensive.
However, analysts expect EPS to drop a lot this year by 68%, but then recover in 2021. The P/E Ratio for 2021 is 12.44 based on a stock price of $31.98 and EPS of $2.57. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $18.74. 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 1.71 based on a stock price of $31.98. This stock price testing suggests that the stock price is relatively expensive.
However, the Graham Price is also affected by the very low EPS for 2020. In 2021, the Graham Price is $33.54. The P/GP Ratio for 2021 is 0.93. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median Price/Book Value per Share Ratio of 1.74. The current P/B Ratio is 1.64 based a Book Value of $679M, Book Value per Share of $19.46 and a stock price of $31.98. The current ratio is 6% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median Price/Cash Flow per Share Ratio of 6.53. The current P/CF Ratio is 8.48 based on 2020 Cash Flow per Share estimate of $3.77. The current ratio is 34% above the 10 year ratio. This stock price testing suggests that the stock price is relatively expensive.
However, analysts expect the cash flow to drop in 2020 and then go back up in 2021. The P/CF Ratio for 2021 is expected to be 4.77 based on 2021 Cash Flow per Share of $6.71 and a stock price of $31.98. The 2021 ratio is 25% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 7.42%. The current dividend yield is 7.13% based on dividends of $2.28 and a stock price of $31.98. The current dividend yield is 4% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get an historical median dividend yield of 7.10%. The current dividend yield is 7.13% based on dividends of $2.28 and a stock price of $31.98. The current dividend yield is .04% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and at the median.
The 10 year median Price/Sales (Revenue) Ratio is 0.97. The current P/S Ratio is 0.93 based on 2020 Revenue estimate of $1,197M, Revenue per Share of $34.28 and a stock price of $31.98. The current ratio is 4% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
However, the Revenue for 2021 is expected to fall 11% in 2020 and then recover in 2021. The P/S Ratio for 2021 is expected to be 0.78. The P/S Ratio is expected to be 19% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
Results of stock price testing is that the stock price is probably reasonable and below the median. There are problems with the testing of this stock as noted above. Analysts expect earnings and revenue and cash flow to drop for 2020 and then be better in 2021. This is hard to know at this point as we really have to wait and see what the fall brings in terms of C-19 and any vaccine or cure. No one know what will happen. But also note that the P/B Ratio testing which does not rely on estimates is also showing that the stock price is reasonable and below the median.
Is it a good company at a reasonable price? The price certainly seems reasonable at the present time. It is a dividend growth company, which is what I like. This old income trust is getting their DPR for EPS under control. They have done well for shareholders in the past. I think this is a good company.
When I look at analysts’ recommendations, I find Strong Buy (3), Buy (4), Hold (2). The consensus would be a Buy. The 12 month stock price is $38.39. This implies a total return of 27.17% with 20.04% from capital gains and 7.13% from dividends.
Analysts on Stock Chase have very wide opinions of this stock from great company to Do Not Buy. Adam Othman on Motley Fool says dividend is a mouthwatering 7.13%. A writer on Simply Wall Street thinks the company’s debt is a risk to the business. A writer on Simply Wall Street thinks the dividend is not sustainable. The Blogger Dividend Earner reviewed this stock in 2019. The dividend site of Sure Dividend also reviewed this stock in 2019.
Exchange Income Corp is a diversified acquisition-oriented corporation focused on opportunities in two sectors, aerospace, aviation services and equipment, and manufacturing. The business plan of the corporation is to invest in profitable, well-established companies with strong cash flows operating in niche markets. Its web site is here Exchange Income Corp .
The last stock I wrote about was about was Genworth MI Canada Inc (TSX-MIC, OTC- GMICF) ... learn more. The next stock I will write about will be ATCO Ltd (TSX-ACO.X, OTC-ACLLF) ... learn more on Monday, August 31, 2020 around 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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