Dividend payers on the TSX typically fall into one of four categories: operating companies that pay out earnings, asset-light royalty firms that collect revenue based on others’ sales, real estate investment trusts that distribute rental cash flow, and a less-discussed group: holding companies.
Unlike the others, holding companies own other businesses outright or in part. They’re underrepresented in many portfolios, but can be powerful income engines. Here’s how they work and one I like that pays monthly income.
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What is a holding company?
An operating company, like a restaurant or factory, generates income from day-to-day operations. It incurs costs from staff, materials, rent, and maintenance and uses revenues to cover these before declaring dividends. That means operating companies face constant pressure from wage inflation, regulatory changes, commodity prices, and market competition.
A holding company takes a different approach. Instead of running the business directly, it owns one or more operating companies and collects profits. Its overhead is far lighter: no factory floors, no product lines, no retail outlets. Earnings flow up from subsidiaries, and shareholders receive steady dividends.
On the balance sheet, holding companies look cleaner. They have diversified assets, consistent cash flow, and often lower debt, since capital isn’t tied up in operations. The model can be ideal for investors who want reliable income without the volatility of direct operational risk. The built-in diversification also helps reduce volatility.
A monthly income holding company
Exchange Income Corporation (TSX: EIF) stands out as one of the few Canadian holding companies that pays a monthly dividend. It doesn’t get a lot of attention, but it quietly owns a wide range of businesses – mostly in aerospace and manufacturing – that generate steady, diversified cash flow.
These include regional airlines, helicopter operators, aircraft maintenance businesses, and niche industrial manufacturers. Some of its past and present holdings include Calm Air, Perimeter Aviation, Carson Air, Custom Helicopters, and WesTower Communications.
What makes EIF unique is that, unlike many holding companies that focus on capital appreciation, dividend income has always been a priority. Since its inception in 2004, the company has paid a monthly dividend without interruption.
Over that time, it has increased its payout 17 times, working out to a compound annual growth rate of 5%. That’s faster than inflation and proof that management has been able to grow both its business and the income it returns to shareholders.
By the end of 2024, EIF had paid out more than $1 billion in dividends. Today, the company pays $2.64 per share annually, distributed in monthly installments. Based on the current share price, that works out to a yield of approximately 4.2%.
The Foolish takeaway
Unlike operating companies that face the day-to-day swings of commodity prices or retail sales, EIF’s cash flow is more insulated. Its subsidiaries manage their own operations, while the holding company focuses on capital allocation and financial oversight.
This structure gives EIF flexibility. It can reinvest in its best businesses, acquire new ones when opportunities arise, and steadily grow its payout over time. For income investors looking for something outside the usual sectors and a source of monthly income that’s both stable and growing, EIF is worth a look.
