RE:ComparisonMore from the same source. GLTA
In this report, we aim to unpack Canadian stocks in three main categories that we feel will be beneficiaries of a rate-cut- ting environment – beaten-up high yielders, highly leveraged names and REITs.
BEATEN-UP HIGH YIELDERS
EXCHANGE INCOME CORPORATION (EIF)
EIF invests in aerospace and aviation, as well as manufac-
turing companies. Its portfolio spans these two sectors, and
historically EIF has been known for its dependable monthly
dividends. Since 2004, EIF has increased its dividend 17
times and has distributed over $800 million in dividends.
Over the past 10 years, it has grown its dividend at a 4.3%
CAGR, and with a current dividend yield of 6.1%, this has
made it a strong income name for Canadian investors. For
several years, EIF saw both share price appreciation and a
high dividend yield, however, its share price has been flat
over the past few years alongside the challenging economic
environment.
In the chart below, we can see its share price, dividend yield,
and drawdown percentage over the past 10 years. Across
the past 10 years, its average dividend yield has been 6.4%,
slightly higher than today, but the name also saw much of its
annual returns coming from price appreciation, which has
not been the case over the past few years.
A lot of this weakness stems from the relative trade off
between a high-yielding GIC or high-interest savings ETF, and
an income stock which has operational risks. Over the past
two years, with GICs hitting rates of 5% and above, investors
have opted to take on less risk in light of a stable investment
with a high yield. We feel that with EIF’s yield being quite
close to that of money market funds, if the Bank of Cana-
da continues to decrease rates, we could see the relative
attractiveness of EIF increase once again, thereby increasing
its valuation and share price.