Investing in dividend stocks with a monthly payout allows you to create a recurring passive income stream at a low cost. While several monthly dividend stocks are trading on the TSX, just a handful of these companies have the potential to generate outsized gains over time.
One such TSX dividend stock with an attractive yield is Exchange Income (TSX:EIF). Valued at a market cap of $2.6 billion, Exchange Income pays shareholders a monthly dividend of $0.22 per share, which translates into a forward yield of 4.9%.
In the last 20 years, EIF stock has returned 500% to shareholders. However, if we adjust for dividend reinvestments, cumulative returns are much higher, at 2,950%. Despite its market-thumping gains, the Canadian midcap stock trades at an attractive valuation, making it a top investment choice today.
The bull case for investing in the TSX dividend stock
Exchange Income has two primary business segments that include:
- Aerospace & Aviation – It offers scheduled airline, cargo, charter, and emergency medical services. The business also provides after-market aircraft, engines, and component parts to regional airline operators.
- Manufacturing – The segment manufactures window wall systems used in multi-family residential projects, stainless steel tanks, commercial water recycling systems, and other custom tanks. Its portfolio of products also includes components used in the aerospace, defence, and healthcare sectors.
Over the years, Exchange Income has grown organically and through highly accretive acquisitions. In Q2 2024, its revenue rose by $33 million to $661 million, while adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) increased by $10 million to $157 million.
Revenue in the aerospace and aviation business rose by 15% to $427 million, while EBITDA grew by 25% to $134 million. The company reported operating cash flow of $101 million and spent $52 million on capital expenditures, which indicates its free cash flow stood at $59 million.
Given its dividend expense and free cash flow growth, Exchange Income ended Q2 with a payout ratio of 61%. This sustainable payout ratio provides Exchange Income with the flexibility to strengthen the balance sheet, target acquisitions, and further raise the dividend payout. In the last two years, EIF has increased its dividends three times.
Is EIF stock still undervalued?
Exchange Income expects to end 2024 with EBITDA between $600 million and $635 million. While the company reported record revenue, EBITDA, and free cash flow in Q2, its growth story is far from over. For instance, it executed the acquisition of Duhamel in June, which should accelerate the growth of environmental Access Solutions in Quebec and Eastern Canada.
During its earnings call, EIF CEO, Mike Pyle stated, “In our Multi-Storey Windows Solution business, we booked in excess of $100 million of future projects across several geographies in Canada and the U.S. amongst a diverse set of customers, whether they be condo, apartment or commercial projects. These positive signs by our Multi-Storey Windows Solution business line provide positive momentum as we head into the second half of the year.”
Priced at 18 times forward earnings, EIF stock is reasonably valued, given that adjusted earrings are forecast to expand by 12% annually in the next five years. Analysts remain bullish and expect the TSX stock to surge 20%, given consensus price target estimates.
