Exchange Income (TSE:EIF) Has Announced A Dividend Of CA$0.19

The board of Exchange Income Corporation (TSE:EIF) has announced that it will pay a dividend on the 13th of May, with investors receiving CA$0.19 per share. This makes the dividend yield 5.3%, which will augment investor returns quite nicely.

Check out our latest analysis for Exchange Income

Exchange Income Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 124% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

The next 12 months is set to see EPS grow by 22.1%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 110%, which probably can't continue putting some pressure on the balance sheet.

Exchange Income Has A Solid Track Record

The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was CA$1.62 in 2012, and the most recent fiscal year payment was CA$2.28. This means that it has been growing its distributions at 3.5% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. It's not great to see that Exchange Income's earnings per share has fallen at approximately 4.2% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Exchange Income's payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Exchange Income (2 shouldn't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.