Yahoo Finance Extendicare's (TSE:EXE) Dividend Will Be CA$0.04
The board of Extendicare Inc. (TSE:EXE) has announced that it will pay a dividend of CA$0.04 per share on the 15th of June. Based on this payment, the dividend yield on the company's stock will be 6.7%, which is an attractive boost to shareholder returns.
View our latest analysis for Extendicare
Extendicare Doesn't Earn Enough To Cover Its Payments
A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.
Looking forward, EPS could fall by 36.4% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 2,119%, which could put the dividend under pressure if earnings don't start to improve.
Extendicare's Track Record Isn't Great
The dividend hasn't seen any major cuts in the last 10 years, but it has slowly been decreasing. 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.
The Dividend Has Limited Growth Potential
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Extendicare's EPS has fallen by approximately 36% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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 don't think Extendicare is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 5 warning signs for Extendicare (4 are concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.
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