Is Exchange Income Stock a Buy?

Even within an industry, some stocks might be worth considering in certain market conditions, while others may be avoided.

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Learning how to pick stocks differs greatly based on your preferred holding period. If you are planning on holding a stock short-term, you might look at budding trends, momentum, and macro factors that might influence a stock’s performance in the next few days or weeks.

However, when evaluating a stock you want to hold long-term, you might consider looking into several other factors, including the company’s business model and resilience.

If you are considering the Exchange Income Fund (TSX:EIF) as a long-term holding and evaluating it on its merits, a few pieces of information might help you identify whether it’s the right fit for your portfolio.

The company

Exchange Income Fund belongs to the aerospace and aviation industry, but it would be a mistake to lump it together with the airlines.

It’s an acquisition-oriented company that currently owns 18 subsidiaries, including multiple regional airlines providing specific services (like air ambulance) operating both within and outside Canada. It also owns several manufacturing/fabrication businesses catering to a wide array of industries, including aerospace.

This diversified portfolio of subsidiaries makes it a comparatively safe business. If the whole aviation industry is suffering, the Exchange Income Fund would feel its impact, too, through the loss of business to several of its subsidiaries.

But since many of its businesses also cater to other industries (despite aerospace/aviation being their primary focus), the loss might not be as severe, and the company may be able to bounce back sooner compared to airlines.

This is how it played out during COVID and the subsequent market recovery.

The stock

The Exchange Income Fund stock cratered during COVID, losing nearly two-thirds (almost 64%) of its market value in a matter of months. This pushed the yield of this compelling dividend stock up to new heights. However, the stock made a remarkable recovery, especially compared to airline stocks in Canada, which are still struggling to reach their pre-pandemic value.

The stock made a full recovery in less than two years, and it’s now trading at a 17% premium to its pre-pandemic peak.

EIF stock has sustained modest bullish momentum in the last couple of years, and the trajectory is still positive. It’s difficult to say how long the stock can move upward, riding the current bullish phase, but its long-term prospects, considering its resilience and business model, look promising.

The dividends are another reason to consider buying this stock. It’s offering a juicy 4.7% yield, and the payout ratio is in the safe zone. The company has a history of raising its payouts, though not consistently enough to be counted among the aristocrats. Still, it has raised its payouts three times in the last five years, making it a promising dividend pick.

Foolish takeaway

The p/e ratio of the Exchange Income Fund is currently 20, which makes it only modestly overvalued. It’s currently in the middle of the overbought and oversold territory, making it a relatively stable purchase that you might consider holding for a long time to fully benefit from its capital appreciation and dividend potential.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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