Is it a good company at a reasonable price? The company is growing and it has been giving shareholders a good return. The risk level is medium, but I see a problem with some Debt Ratios of Leverage Ratio and Debt/Equity Ratio. A plus is that the Liquidity Ratio is good. It is still growing its dividend when a lot of companies that had to go from an Income Trust to a Corporation cannot. The stock price would seem to be reasonable. The P/S Ratio tests says it is cheap.
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 now behind a paywall.
When I was updating my spreadsheet, I noticed they have had two good years in 2021 and 2022. Revenue went up by 23% in 2021 and 46% in 2022. Earnings per Share (EPS) went up 131% in 2022 and 39% in 2023. Another sign that it is doing well is that more analysts are following this stock.
The chart below shows growth for the past 5 and 10 years.
| Year | Item | Tot. Growth | Per Year |
|---|---|---|---|
| 5 | Revenue Growth | 103.30% | 15.25% |
| 5 | AEPS Growth | 26.72% | 4.85% |
| 5 | FCF per Share Growth | 46.80% | 7.98% |
| 5 | Net Income Growth | 51.98% | 8.73% |
| 5 | Cash Flow Growth | 168.73% | 21.86% |
| 5 | Dividend Growth | 13.81% | 2.62% |
| 5 | Stock Price Growth | 47.67% | 8.11% |
| 10 | Revenue Growth | 157.24% | 9.91% |
| 10 | AEPS Growth | 150.40% | 9.61% |
| 10 | FCF per Share Growth | 89.96% | 6.63% |
| 10 | Net Income Growth | 332.60% | 15.77% |
| 10 | Cash Flow Growth | 1700.15% | 33.52% |
| 10 | Dividend Growth | 47.08% | 3.93% |
| 10 | Stock Price Growth | 104.15% | 7.40% |
If you had invested in this company in December 2012, for $1,005.42 you would have bought 39 shares at $25.78 per share. In December 2022, after 10 years you would have received $802.72 in dividends. The stock would be worth $2,052.57. Your total return would have been $2,855.29. This is a total return would be 13.24% per year with 7.40% from capital gains and 5.84% from dividends.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $25.78 | $1,005.42 | 39 | 10 | $802.72 | $2,052.57 | $2,855.29 |
The current dividend yield is good with dividend growth low. The current dividend yield is good (5% to 6% ranges) at 5.33%. The 5 and 10 year median dividend yields are also good at 5.97%, and 6.59%. This historical median dividend yield is high (7% and above) at 7.42%. Note that this company used to be an income trust and income trust could afford to pay much higher dividends than corporations. The dividend growth is low (below 8%) at 2.6% per year over the past 5 years. The last dividend increase was in 2022 and it was a 5% increase.
The Dividend Payout Ratios (DPR) are fine. The DPR for 2022 for Earnings per Share (EPS) is 61% with 5 year coverage at 115%. The DPR for 2022 for Adjusted Earnings per Share (AEPS) is 76% with 5 year coverage at 101%. The DPR for 2022 for Free Cash Flow (FCF – as per company) is 60% with 5 year coverage at 64%. The DPR for 2022 Cash Flow per Share (CFPS) is 28.49% with 5 year coverage at 31%. The DPR for 2022 for Free Cash Flow (FCF) is 41% with 5 year coverage at 53%. The important DPRs is the one for AEPS, which thankfully is expected to decline to 61 in 2024 and 42% in 2025 and the CFPS which is fine and any CRPS DPR 40% or less is good. So, I judge these fine at present.
| Item | Cur | 5 Years |
|---|---|---|
| EPS | 90.53% | 114.64% |
| AEPS | 76.36% | 100.69% |
| FCF PS | 59.90% | 64.16% |
| CFPS | 28.49% | 31.45% |
| FCF | 41.31% | 53.09% |
Some Debt Ratios need improving. The Long Term Debt/Market Cap Ratio for 2022 is 0.72. It is a high but probably fine, although some Analysts do not like this ratio to be above 0.50 and some think under 1.00 is fine. The Liquidity Ratio for 2022 is good at 1.80 as any ratio at 1.50 or above is good. The Debt Ratio for 2022 is a bit low at 1.40. I like this to be at 1.50 or above. The Leverage and Debt/Equity Ratios are too high at 3.48 and 2.48. I prefer these to be under 3.00 and 2.00.
| Type | Year End | Ratio Curr |
|---|---|---|
| Lg Term R | 0.72 | 0.83 |
| Intang/GW | 0.41 | 0.49 |
| Liquidity | 1.80 | 1.91 |
| Liq. + CF | 2.20 | 2.32 |
| Debt Ratio | 1.40 | 1.47 |
| Leverage | 3.48 | 3.14 |
| D/E Ratio | 2.48 | 2.14 |
The Total Return per year is shown below for years of 5 to 19 to the end of 2022. 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. |
|---|---|---|---|---|---|
| 2017 | 5 | 2.62% | 13.60% | 8.11% | 5.49% |
| 2012 | 10 | 3.93% | 13.24% | 7.40% | 5.84% |
| 2007 | 15 | 3.41% | 20.45% | 11.00% | 9.45% |
| 2003 | 19 | 8.61% | 34.59% | 15.08% | 19.51% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 14.38, 17.22 and 20.06. The corresponding 10 year ratios are 13.45, 16.47 and 20.67. The corresponding historical ratios are 12.52, 15.72 and 18.54. The current P/E Ratio is 17.14 based on a stock price of $47.30 and EPS estimate for 2023 of $2.76. The current ratio is between the median and high ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I also have Adjusted Earnings per Share (AEPS) data. The 5-year low, median, and high median Price/Adjusted Earnings per Share Ratios are 10.99, 14.52 and 16.92. The corresponding 10 year ratios are 10.80, 14.16 and 17.76. The current P/AEPS Ratio is 14.38 based on a stock price of $47.30 and AEPS estimate for 2023 of $3.29. The current ratio is between median and high ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $45.39. The 10-year low, median, and high median Price/Graham Price Ratios are 0.81, 1.12 and 1.41. The current P/GP Ratio is 1.04 based on a stock price of $47.30. The current ratio is between the low and median ratios of the 10 year median ratios. 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 1.80. The current ratio is 1.70 based on a Book Value of $1,183M, Book Value per Share of $27.84 and a stock price of $47.30. The current ratio is 5% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I also have a Book Value per Share estimate for 2023 of $30.10. The analysts are calculating the Book Value differently than I am. Their 10 year P/B Ratio is 1.72. This estimate implies a Book Value of $1,279 and P/B Ratio is 1.57 based on a stock price of $47.30. This ratio is 8% 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 5.82. The current P/CF Ratio is 5.89 based on a stock price of $47.30, Cash Flow for the last 12 months of $341M and Cash Flow per Share of $8.03. The current ratio is 1% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get an historical median dividend yield of 7.42%. The current dividend yield is 5.33% based on dividends of $2.52 and a stock price of $47.30. The current dividend is 28% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive. However, this company used to be an income trust and such companies can have very high dividend yields, so this is probably not a good test.
I get a 10 year median dividend yield of 6.59%. The current dividend yield is 5.33% based on dividends of $2.52 and a stock price of $47.30. The current dividend is 19% below the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median. However, this company used to be an income trust and such companies can have very high dividend yields, so this is probably not a good test. The dividend yield is been declining since the company became a corporation.
The 10-year median Price/Sales (Revenue) Ratio is 1.09. The current P/S Ratio 0.82 based on Revenue estimate for 2023 of $2,441M, Revenue per Share of $57.46 and a stock price of $47.30. The current ratio is 25% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
Results of stock price testing is that the stock price is probably reasonable. Because the dividend yield is declining and that decline is probably due to the company changing from an income trust to a corporation, we probably must rely on other stock price testing than the dividend testing. The P/S Ratio testing says the stock price is cheap, but it is the only one to say that. All the rest are saying reasonable and above and below the median.
When I look at analysts’ recommendations, I find Strong Buy (4) and Buy (6). The consensus would be a Strong Buy. The 12 months stock price target is $67.75. This implies a total return of 48.56%, with 43.23% from capital gains and 5.33% from dividends.
Analysts on Stock Chase do like this stock. Stock Chase gives this stock 4 stars out of 5. This stock is on the Maple Money and Aristocrat lists but not the Money Sense list. Demetris Afxentiou on Motley Fool likes the 5% dividend and the monthly payment. Aditya Raghunath on Motley Fool likes that this stock has a long history of dividend payments. The company posted a press release on Business wire about their year-end of 2022 results . The company put out a press release on Business wire about their second quarter of 2023 results.
Simply Wall Street via Yahoo Finance reviews this stock and its dividend. They give out 3 warnings signs of interest payments are not well covered by earnings; and dividend of 5.28% is not well covered; and shareholders have been diluted in the past year. By the way, Shareholder dilutions matter as it makes a difference in say, Revenue and Revenue per Share. Simply Wall Street gives this stock 4 stars out of 5.
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 cash flows operating in niche markets. Its web site is here Exchange Income Corp.
The last stock I wrote about was about was Alimentation Couche-Tard Inc (TSX-ATD, OTC-ANCUF) ... learn more. The next stock I will write about will be ATCO Ltd (TSX-ACO.X, OTC-ACLLF) ... learn more on Friday, August 25, 2023 around 5 pm. Tomorrow on my other blog I will write about Best Stocks for Income Investors.... learn more on Thursday, August 24, 2023 around 5 pm.
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Thanks for a great analysis
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