Exchange Income (TSE:EIF) Is Due To Pay A Dividend Of CA$0.22

The board of Exchange Income Corporation (TSE:EIF) has announced that it will pay a dividend on the 15th of October, with investors receiving CA$0.22 per share. The dividend yield will be 3.6% based on this payment which is still above the industry average.

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Exchange Income's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the dividend made up 99% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.

The next year is set to see EPS grow by 101.0%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 54% which would be quite comfortable going to take the dividend forward.

View our latest analysis for Exchange Income

Exchange Income Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was CA$1.68 in 2015, and the most recent fiscal year payment was CA$2.64. This means that it has been growing its distributions at 4.6% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Could Be Constrained

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Exchange Income has been growing its earnings per share at 11% a year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

Exchange Income's Dividend Doesn't Look Sustainable

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. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Exchange Income that investors should know about before committing capital to this stock. Is Exchange Income not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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