Monday’s TSX breakouts: A stock yielding 5.6% with 11 dividend hikes in 12 years

Overall, last week was uneventful with the S&P/TSX composite index closing relatively unchanged, up 19 points from the previous Friday. A notable mover was the price of natural gas, which spiked 3 per cent last week.

To recap, on Friday, the S&P/TSX composite index lost 59 points, or 0.40 per cent to close at 14,585. There were 97 securities in the TSX Index that advanced, 145 securities declined in value, and five stocks closed the day unchanged. Trading volume was lighter than normal for the TSX Index and gold stocks were, once again, under pressure.

The S&P/TSX composite index is down 0.96 per cent month-to-date, and up 12.11 per cent year-to-date.

Today's TSX Breakouts report has a matched number of securities on the positive breakouts list (stocks with positive price momentum) compared to the negative breakouts list (stocks with negative price momentum), 26 stocks on each list to be exact.

Discussed today is a dividend stock that is just about to cross the $1-billion market capitalization level. The security offers investors an attractive 5.6 per cent yield with a dividend that has progressively moved higher over the years. The stock I am referring to is Exchange Income Corp. (EIF-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Exchange Income Corporation has two business segments: Aerospace & Aviation, and Manufacturing.

One of management's corporate objectives is acquisition growth. In August, the company completed its latest acquisition, purchasing CarteNav Solutions Inc., a software developer with operations that will be complementary to the company's aerospace business.

After the market closed on August 9, the company reported better-than-expected second-quarter financial results that sent the share price climbing 1.4 per cent the following trading day, on high volume. The stock has an impressive record of appreciating in value after reporting its financial results, rallying the past six times the day after reporting its quarterly results. Second quarter revenues were $226.9-million, beating the Street's forecast of $216.7-million and up 16 per cent year-over-year. Earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $56.9-million, exceeding the consensus estimate of $55-million, and up 18 per cent from the prior year. Adjusted earnings per share (EPS) was 74 cents, up from 71 cents during the same period last year.

In the earnings releases, Carmele Peter, the president, provided a robust outlook, stating, "We are very optimistic about the future prospects for EIC. Our strong balance sheet with approximately $220 million in available capital provides the resources necessary to realize on growth opportunities, both organically and through acquisition."

Dividend policy

The company pays its shareholders a monthly dividend of 16.75 cents per share, or $2.01 on a yearly basis. This translates to an annualized dividend yield of 5.6 per cent. Last quarter, the payout ratio was 54 per cent.

The company has increased its dividend 11 times over the past 12 years. Over the past decade, the dividend has steadily increased to its present level of 16.75 cents per share a month from 10 cents per share. The most recent dividend hike was announced in May, a 4.7 per cent jump from it previous rate of 16 cents per share.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 6.7 times the 2017 consensus estimate, above its five-year historical average of 6.2 times, but below its peak of approximately 7.5 times during this period.

Analysts' recommendations

This small-cap stock, with a market capitalization of $993-million, is well covered by the Street with 11 analysts following the company. The firms providing analyst coverage are Alta Corp. Capital, Canaccord Genuity, CIBC World Markets, EVA Dimensions, Laurentian Bank Securities, Macquarie, National Bank Financial, Raymond James, RBC Capital Markets, Scotia Capital, and TD Securities. There are nine 'buy' recommendations and two 'hold' recommendations.

Target prices range from a low of $36 to a high of $42. The average one-year target price is $39.15, which implies there is 9 per cent upside potential in the share price. If you include the dividend yield, the potential total return is over 14 per cent.

The consensus revenue estimate is $910-million for 2016, rising 3.6 per cent to $943-milion in 2017. The Street is forecasting EBITDA of $214-million in 2016, climbing over 5 per cent to $226-million in 2017. The consensus EPS estimate is $2.20 in 2016, and forecast to increase over 7 per cent to $2.37 in 2017.

Earnings estimates have been rising. At the start of the year, the Street was forecasting revenue of $863-million for 2016, and $886-million for 2017. The consensus EBITDA estimate was $199-million for 2016, and $209-million the following year. The consensus EPS estimate was $2.06 for 2016, and $2.22 for 2017.

Chart watch

The share price has been in an uptrend since the start of 2015, and is up 26 per cent year-to-date. On Friday, the stock price closed at an all-time high.

The shares may need to digest these gains, and consolidate, before climbing higher. The next potential catalyst comes next month, when the company reports its third-quarter financial results. The company will be reporting its third-quarter financial results after the market closes on November 9. This is historically the company's strongest quarter.

In terms of downside support, there is initial support around its 50-day moving average, which lies at $34.68. There is strong support at $30, which is near its 200-day moving average (at $29.97).

This small cap stock has reasonable daily trading volume. The two-month historical average daily trading volume is approximately 113,000 shares.

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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.