Yahoo Finance Extendicare (TSE:EXE) Has Announced A Dividend Of CA$0.04
The board of Extendicare Inc. (TSE:EXE) has announced that it will pay a dividend on the 15th of July, with investors receiving CA$0.04 per share. This makes the dividend yield 6.6%, which will augment investor returns quite nicely.
View our latest analysis for Extendicare
Extendicare's Payment Has Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the dividend made up 114% of earnings, and the company was generating negative free cash flows. 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.
Over the next year, EPS could expand by 46.5% if the company continues along the path it has been on recently. If the dividend continues along recent trends, we estimate the payout ratio could reach 76%, which is on the higher side, but certainly still feasible.
Extendicare Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. There hasn't been much of a change in the dividend over the last 10 years. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
Extendicare Might Find It Hard To Grow Its Dividend
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Extendicare has been growing its earnings per share at 47% a year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.
Extendicare's Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Although they have been consistent in the past, we think the payments are a little high to be sustained. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Extendicare has 2 warning signs (and 1 which is potentially serious) we think you should know about. Is Extendicare not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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