Extendicare Inc. (TSE:EXE) will pay a dividend of CA$0.04 on the 15th of March. Based on this payment, the dividend yield on the company's stock will be 7.1%, which is an attractive boost to shareholder returns.

See our latest analysis for Extendicare

Extendicare Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Extendicare was paying out 19,786% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

EPS is set to fall by 63.4% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 50,931%, which is definitely a bit high to be sustainable going forward.

Extendicare's Track Record Isn't Great

The dividend is currently lower than it was 10 years ago, indicating that there has been a downward trend over that time. The annual payment during the last 10 years was CA$0.84 in 2013, and the most recent fiscal year payment was CA$0.48. Doing the maths, this is a decline of about 5.4% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Extendicare's EPS has fallen by approximately 63% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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. We would probably look elsewhere for an income investment.

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. Just as an example, we've come across 5 warning signs for Extendicare you should be aware of, and 2 of them are a bit unpleasant. Is Extendicare not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.