This 4.2% Monthly Payer Is the Income Investor’s Dream Stock

Stocks that pay a monthly dividend stream are attractive to income-oriented investors. The income these stocks produce can be used for your monthly living expenses, or it can be reinvested into other income-producing stocks just that much quicker (than on a quarterly or biannual basis).

Unfortunately, if you want monthly passive income, you often only have real estate, mortgage, or energy stocks to choose from. However, if you do dig a bit deeper, there are a few stocks in mixed sectors that have stable enough cash flows that they are also able to pay monthly dividends. In fact, some of those exterior sectors have been able to provide a great mix of monthly income and solid capital gains.

Exchange Income stock: A dream for monthly income

One of those stocks is Exchange Income Corporation (TSX:EIF). With a price of $65.94, this stock has a market cap of $3.3 billion. It pays a $0.22 per share monthly dividend, which equates to a 4.2% dividend yield today.

This stock has raised its monthly dividend 17 times since 2004. It has grown its dividend by a 5% compounded annual growth rate (CAGR)! If you invested $10,000 into this stock today, you would earn $33.22 per month. That rate would likely grow if it continued its attractive dividend growth trajectory.

What does this stock do?

Exchange Income operates a diverse mix of aerospace and industrial businesses. For aerospace, it has become a leading air transport provider to remote communities in northern Canada.

Its airlines provide a vital link of supplies, medical treatment, and transport to many of these communities. Its service is not only crucial, but also essential. This is complemented by an aerospace components business and a sales/leasing business.

The industrial segment is a bit of a mixed bag of construction, energy, and manufacturing businesses. However, often it is a leader in niche market segments like construction mats, tank construction, and wireless infrastructure development.

Smart acquisitions could lead to solid dividend growth

Exchange has built its portfolio by making significant acquisitions almost every year. Earlier this year, it acquired the assets of Bradley Air Services, which operated the Canadian North airline. This was an extremely complimentary acquisition and is likely to be very accretive over the coming few years.

In its most recent quarter, adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) rose 17% to $130 million, and adjusted earnings per share increased 40% to $0.28. It produced $81 million of free cash flow or $1.47 per share.

On an earnings basis, its payout ratio is far over 100%. However, on a free cash flow basis, the dividend is well protected with a 63% payout ratio. The company can afford its dividend and still invest in further acquisitions over time. I suspect that as this business becomes larger, its stock will also become more resilient.

The Foolish takeaway

This stock has delivered great monthly dividends for long-term shareholders. However, capital returns have not been too bad either. Its stock is up 137% in the past five years and 200% in the past 10 years.

Add in dividends, and the company has compounded by attractive 25% and 18% CAGRs over those respective periods. For a nice mix of growth and monthly income, Exchange Income is an income investor’s dream come true.