Many Canadian stocks trade at a discount because of rate uncertainty and pressure from the bond market. However, income-focused investors can stay invested in stocks known for beating the TSX with growing dividends.
Exchange Income (TSX:EIF), or EIC, said its stock has generated an average annual return of 20% over the past 19 years. The industrial stock has raised dividends 16 times since 2004, and the feat was made possible by the strength of a diversified business model.
If you invest today, the share price is $44.13 (-12.98% year to date), while the annual dividend per share is $2.46. Thus, with EIC’s 5.58% dividend yield and monthly distributions, 490 shares ($21,623.70 investment) will generate $100.55 in passive income every month.
Dividend grower
EIC is a dividend grower, and its dividend policy mandates the payment of cash dividends in each monthly period if the portfolio of subsidiary companies generates enough funds. The $2.05 billion company has two main operating segments: Aerospace & Aviation and Manufacturing.
The 18 subsidiaries cater to niche markets, including medevac services and precision-machined components for the defence sector. Because each subsidiary company operates autonomously, EIC endures economic cycles and market fluctuations. More importantly, the collective strength of the group of companies supports consistent dividend payments and growth.
EIC’s dividend history is a compelling reason to invest in the stock without reservations. The company has paid dividends since March 22, 2004, and the streak continues. Based on internal records, total cash dividend payments were more than $750 million in year-end 2022.
Early this month, an acquisition-oriented dividend payer added a new firm to the group. EIC bought DryAir Manufacturing Corp. for $60 million in cash and shares. This latest acquisition manufactures heating systems for various industries in North America and should deliver growing cash flows.
Foundation for future growth
In the first half of 2023, revenue and net earnings increased 24% and 30% year over year to $1.15 billion and $43.75 million. EIC’s free cash flow (FCF) and dividends declared grew 15% and 20% to $157.7 million and $54.61 million versus the same period in 2022.
The $627 million revenue, $37 million net earnings, and $98 million FCF in the second quarter (Q2) of 2023 were also new quarterly records. Mike Pyle, chief executive officer of EIC, said, “Many investors think that our growth comes only from acquisitions. However, when peeling back the onion, one sees that we invest significant capital in our existing businesses through organic growth opportunities.”
Moreover, the record quarterly results demonstrate the resiliency and strength of EIC’s diversified model. Pyle added, “We continue to see strengthening in certain businesses within our Aerospace & Aviation and Manufacturing segments, which bodes well for our future.”
Adam Terwin, EIC’s chief corporate development officer, said, “Our pipeline of opportunities continues to be as strong as it has ever been.” He emphasized that the two acquisitions (Hansen and BVGlazing) in the second quarter are highly strategic to the pre-existing businesses.
Investment pitch
The assurance of Carmele Peter, president of EIC, should resonate with dividend earners. He said, “The Canadian and U.S. economies are experiencing uncertainty; however, our businesses continue to be resilient. We are not resting on our laurels.” EIC remains focused on longer-term trends and macroeconomic factors within its business lines.
