Investing in quality dividend stocks with monthly payouts is a proven strategy for beginning a low-cost passive-income stream. As dividend payouts are not guaranteed and can be revoked if a company's financials deteriorate, it's essential to identify stocks that have showcased an ability to maintain and even increase these payments over time.

Exchange Income (TSX:EIF) is one such TSX dividend stock you can buy and hold as it pays shareholders a tasty dividend yield of 5.2%. Valued at a market cap of $2.5 billion, Exchange Income went public in May 2004. In the last 21 years, the TSX stock has returned over 500% to shareholders. However, if we adjust for dividend reinvestments, cumulative returns are closer to 3,000%. So, an investment of $500 in EIF stock soon after it went public would be worth close to $15,800 today.

Despite its outsized gains, Exchange Income trades 15% below all-time highs, allowing you to buy the dip. Let's see why you should own this mid-cap stock at the current valuation.

Is the TSX dividend stock a good buy?

Exchange Income Corporation posted record financial results for 2024 while announcing one of its most significant acquisitions to date: the purchase of the airline Canadian North.

EIC achieved its highest-ever adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), free cash flow, and adjusted net earnings for both the fourth quarter (Q4) and full year 2024. Revenue for Q4 stood at $688 million, with adjusted EBITDA of $167 million and free cash flow of $111 million — all quarterly records for the company.

"Our annual performance continued to be extremely strong," said Chief Executive Officer Mike Pyle. "These results were generated during a year I would describe as challenging from a macroeconomic standpoint."

The Aerospace & Aviation segment drove EIC's performance, with Q4 revenue increasing 8% to $415 million and adjusted EBITDA jumping 29% to $140 million. The segment benefited from previous capital investments, improved load factors, Air Canada route partnerships, and contributions from provincial medevac contracts in Manitoba and British Columbia.

EIC's Manufacturing segment saw a modest $1 million increase in Q4 revenue to $272 million, though adjusted EBITDA decreased by $6 million to $40 million. The company noted positive momentum with approximately $200 million in new bookings for its Multi-Storey Windows Solutions business, which will benefit production in 2026 and beyond.

The highlight of the call was EIC's recently announced acquisition of Canadian North, described as "highly complementary" to its existing Essential Air Services business. The acquisition will expand EIC's geographical reach to all Nunavut regions and the Northwest Territories.

Chief Financial Officer Rich Wowryk noted that no new equity capital would be required to fund the Canadian North transaction due to recent financing activities, including the conversion of Series J and K convertible debentures, which reduced EIC's aggregate leverage ratio to 3.22 — its lowest since 2019.

For 2025, EIC maintains its previous guidance of adjusted EBITDA between $690 million and $730 million, which does not include the impact of the pending Canadian North acquisition.

A focus on dividend growth

EIF pays shareholders an annual dividend of $2.64 per share, which translates to a monthly payout of $0.22 per share. Notably, annual dividends have risen from $1.08 per share in 2005.

EIF announced it has surpassed $1 billion in cumulative dividends paid since inception, which Pyle called "a credit to our business model, our subsidiaries, but most importantly our management teams and our employees."

The growth story for EIF is far from over as it is forecast to expand its free cash flow from $201 million in 2023 to $247 million in 2025 and $277 million in 2026.

Given its outstanding share count, EIF's annual dividend expense is roughly $131 million, indicating a payout ratio of 53%. It suggests that EIF has room to raise its dividends and target accretive acquisitions.

Priced at 10 times forward free cash flow EIF stock is quite cheap and trades at 40% discount to consensus price targets.