Is it a good company at a reasonable price? This company has certainly done well for its shareholders in the past. The dividend yields have been quite high in the past because the company used to be an income trust. However, the dividend yields have been generally declining since the Income Trust law changes effective 2011. This will probably continue. The company does have a lot of debt. The stock price is generally testing as reasonable, but at the high end of that range.
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 no longer available.
When I was updating my spreadsheet, I noticed as with a lot of companies lately, growth has slowed between 5 years and 10 years. See AEPS, Cash Flow and Net Income. Revenue has picked up. This company has done well for their shareholders. See total return in the chart further down in my blog entry. However, a lot of the total return is in dividends.
| Yr | Item | Tot. Gwth | Per Year | Gwth | Coverage |
|---|---|---|---|---|---|
| 5 | Revenue Growth | 107.61% | 15.73% | 4.33% | <-12 mths |
| 5 | AEPS Growth | 9.64% | 1.86% | -9.77% | <-12 mths |
| 5 | FCF per Share Growth | 15.36% | 2.90% | 6.05% | <-12 mths |
| 5 | Net Income Growth | 72.83% | 11.56% | -5.38% | <-12 mths |
| 5 | Cash Flow Growth | 114.54% | 16.49% | 7.16% | <-12 mths |
| 5 | Dividend Growth | 16.72% | 3.14% | 4.35% | <-12 mths |
| 5 | Stock Price Growth | 59.59% | 9.80% | 7.32% | <-12 mths |
| 10 | Revenue Growth | 142.55% | 9.26% | 9.51% | <-this year |
| 10 | AEPS Growth | 403.01% | 17.53% | 0.98% | <-this year |
| 10 | FCF per Share Growth | 227.78% | 12.61% | -7.51% | <-this year |
| 10 | Net Income Growth | 1261.39% | 29.84% | 11.69% | <-this year |
| 10 | Cash Flow Growth | 5649.51% | 49.96% | 7.16% | <-this year |
| 10 | Dividend Growth | 50.60% | 4.18% | 4.74% | <-this year |
| 10 | Stock Price Growth | 99.56% | 7.15% | 7.32% | <-this year |
If you had invested in this company in December 2013, for $1,017.00 you would have bought 45 shares at $22.60 per share. In December 2023, after 10 years you would have received $964.46 in dividends. The stock would be worth $2,029.50. Your total return would have been $2,993.96. This would be a total return of 14.18% per year with 7.15% from capital gain and 7.03% from dividends.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $22.60 | $1,017.00 | 45 | 10 | $964.46 | $2,029.50 | $2,993.96 |
The current dividend yield is good with dividend growth low. The current dividend yield is good (5% to 6% ranges) at 5.32%. The 5 and 10 year dividend yields are also good at 5.52% and 6.07%. The historical median dividend yield is high (7% and above) at 7.30%. This company used to be an income trust and they can have very high dividend. The dividend growth is low (below 8% per year) at 3% per year. The company has appeared on the Money Sense list in the past, but it is not on the current list for 2024.
Some Dividend Payout Ratios (DPR) are too high, but they are coming down to more reasonable levels. The DPR for 2023 for Earnings per Share (EPS) is too high at 95% with 5 year coverage at 113%. The DPR for 2023 for Adjusted Earnings per Share (AEPS) is too high at 82% with 5 year coverage at 102%. The DPR for 2023 for Free Cash Flow (FCF) stated by the company is fine at 61% with 5 year coverage at 64%. The DPR for 2023 for Cash Flow per Share (CFPS) is good at 29% with 5 year coverage at 31%. The DPR for 2023 for Free Cash Flow (FCF) is fine at 57% with 5 year coverage at 59%.
| Item | Cur | 5 Years |
|---|---|---|
| EPS | 95.47% | 112.93% |
| AEPS | 82.41% | 101.69% |
| FCF Co. | 61.26% | 64.22% |
| CFPS | 29.39% | 31.10% |
| FCF | 56.78% | 58.89% |
Most Debt Ratios are fine, but the company has too much debt. The Long Term Debt/Market Cap Ratio for 2023 is fine at 0.86 and currently at 0.83 but I do prefer these at 0.50 or less. The Liquidity Ratio for 2023 is good at 1.87 and 1.77 currently. The Debt Ratio for 2023 is fine, but a bit low at 1.44 and 1.43 currently. The Leverage and Debt/Equity Ratios for 2023 are too high at 3.28 and 2.28 and currently at 3.33and 2.33. I prefer these ratios to be below 3.00 and 2.00.
| Type | Year End | Ratio Curr |
|---|---|---|
| Lg Term R | 0.86 | 0.83 |
| Intang/GW | 0.49 | 0.46 |
| Liquidity | 1.87 | 1.77 |
| Liq. + CF | 2.25 | 2.15 |
| Debt Ratio | 1.44 | 1.43 |
| Leverage | 3.28 | 3.33 |
| D/E Ratio | 2.28 | 2.33 |
The Total Return per year is shown below for years of 5 to 20 to the end of 2023. 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. |
|---|---|---|---|---|---|
| 2018 | 5 | 3.14% | 16.74% | 9.80% | 6.94% |
| 2013 | 10 | 4.18% | 14.18% | 7.15% | 7.03% |
| 2008 | 15 | 3.52% | 23.36% | 11.34% | 12.01% |
| 2003 | 20 | 8.47% | 34.16% | 13.40% | 20.76% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 16.02, 18.47 and 20.92. The corresponding 10 year ratios are 13.45, 16.47 and 20.49. The corresponding historical ratios are 13.01, 15.80 and 19.30. The current P/E Ratio is 18.47 based on a stock price of $49.58 and EPS estimate for 2024 of $2.69. This 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 12.12, 15.94 and 18.06. The corresponding 10 year ratios are 10.80, 14.16 and 17.51. The current ratio is 15.99 based on a stock price of $49.58 and AEPS estimate for 2024 of $3.10. 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 Free Cash Flow per Share (FCF) data from the company. The 5-year low, median, and high median Price/Adjusted Earnings per Share Ratios are 9.51, 11.23 and 13.28. The corresponding 10 year ratios are 8.76, 11.17 and 13.35. The current ratio is 12.98 based on a stock price of $49.58 and FCF estimate for 2024 of $3.82. 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 get a Graham Price of $36.71. The 10-year low, median, and high median Price/Graham Price Ratios are 0.81, 1.12 and 1.33. The current P/GP Ratio is 1.16 based on a stock price of $49.58. 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 get a 10-year median Price/Book Value per Share Ratio of 1.87. The current P/B Ratio is 2.57 based on a Stock Price of $49.58, Book Value of $1,224M, and Book Value per Share of $25.98. The current ratio is 2% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I also have Book Value per Share estimate for 2024 of $27.22. In this analysis, the P/B Ratio is calculated different and the 10 year median ratio is 1.81. This PVPS implies a P/B Ratio of 1.82, Book Value of $1,283M with stock price of $49.58. This ratio of 1.82 is 0.8% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10-year median Price/Cash Flow per Share Ratio of 5.91. The current P/CF Ratio is 6.17 based on Cash Flow for the last 12 month to the end of the Second Quarter of $378.5M, Cash Flow per Share of $8.03 and a stock price of $49.58. This ratio is 4.5% 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 7.30%. The current dividend yield is 5.32% based on a stock price of $49.58 and dividends of $2.64. The current yield is 27% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive. However, this stock used to be an income trust company and these companies and pay much higher dividends than corporations.
I get a 10 year median dividend yield of 6.07%. The current dividend yield is 5.32% based on a stock price of $49.58 and dividends of $2.64. The current yield is 12% below the historical median 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 1.09. The current P/S Ratio is 0.85 based on Revenue estimate for 2024 of $2,736M, Revenue per Share of $58.04 and a stock price of $49.58. The current ratio is 21.9% 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 probable reasonable. The 10 year dividend yield testing is showing the stock price as relatively reasonable, but above the median. It is interesting that the P/S Ratio test is the only one to show that the stock price is cheap. All of the rest of the testing is showing that the stock price is reasonable, but above the median.
When I look at analysts’ recommendations, I find Strong Buy (5), and Buy (4). The consensus would be a Strong Buy. The 12 month stock price consensus is $64.94, with a high of $72.00 and low of $60.00. The consensus price of $64.94 implies a total return of 36.30% with 30.98% from capital gains and 5.32% from dividends based on a current stock price of $49.58.
There are 5 buys out of 8 recommendations on Stock Chase for 2024. The most recent negative report talks about this company missing estimate for EPS and Revenue. Stock Chase gives this stock 4 stars out of 5. Kay Ng on Motley Fool thinks this is a good stock for passive income for your TFSA. Demetris Afxentiou on Motley Fool thinks this is a good stock to buy for passive income. The company put out a press release via Yahoo Finance about the second quarter. The company put out a press release via Yahoo Finance about their 2023 year end results.
Simply Wall Street via Yahoo Finance talks about 3 Canadian small caps with insider buying. The last stock on this report is Exchange Income Corp. Simply Wall Street gives this stock 3 and one half stars out of 5. Simply Wall Street has 3 warnings of interest payments are not well covered by earnings; dividend of 5.34% is not well covered by earnings or free cash flows; and shareholders have been diluted in the past year.
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 Monday, August 26, 2024 around 5 pm.
This blog is meant for educational purposes only and is not to provide investment advice. I am not a licensed professional investment advisor. 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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