In this piece, we’ll check in on a monthly dividend payer that’s more than worthy of a long-term spot in a TFSA (Tax-Free Savings Account). As you may know, investors should share their best ideas for their TFSAs. For passive income investors, positioning it for tax-free income is a great way to go.
And while yields across the board might be a bit lower on average, I still think that there’s no shortage of great long-term income generators that are a great fit for any income fund this July. In this piece, we’ll focus on one intriguing and still reasonably valued name that cuts investors a nice cheque monthly.
Source: Getty Images
Exchange Income Corp.
Enter shares of Exchange Income Corp. (TSX: EIF), one of the TSX Index’s more popular monthly dividend payers, not just because of the monthly payout, but because the dividend has grown by leaps and bounds over the years, and, perhaps most importantly, the shares have been gaining considerable traction. Indeed, whenever you can land monthly income and solid capital appreciation from the same stock, you might have a strong contender for a TFSA name to buy for the next five to eight years or more.
In my view, the fact that Exchange Income Corp. pays dividends monthly is the least interesting part. While the 2.2% dividend yield might not seem all too hefty, especially for Canadian passive income seekers who have a lifestyle to fund, the year-to-date gains in the name (currently just shy of 60%) are attention-grabbing.
Not cheap, but a quality grower that pays monthly
Of course, the shares have seen the multiples stretch amid the epic run, but, at the same time, I do think that the fundamentals are improving at a rate that justifies nibbling on a few shares even at close to all-time highs just north of $130 per share. After a 180% surge in just two short years, waiting for a bit of a pullback seems only prudent, especially with the stock going for more than 37 times trailing price-to-earnings (P/E).
In many ways, EIF shares aren’t the same hefty yield they once were. In a way, it’s kind of like a growth stock. In any case, I do think that the firm deserves to go for a premium (maybe even a fatter premium than is currently being commanded) after posting a first-quarter result for the record books.
With explosive free cash flow growth and a mouth-watering revenue surge, the name deserves to trade at a growthier multiple. Add the track record of smart acquisitions into the equation and how much recent deals could be a timely needle-mover on the shares for the second half, and I think shares of EIF are still worth watching very closely.
The bottom line
The payout looks well-covered and, what’s more, the firm might be in a spot to get more generous with dividend hikes moving forward, especially given the free cash flows coming in. In my view, high single-digit or low double-digit percentage dividend hikes could be in the cards. So, whether you’re looking for dividend growth, monthly income, or just earnings growth, EIF stock really does stand out as the mid-cap ($7.4 billion market cap) continues its ascent.
