Chartwell Retirement Residences (TSE:CSH.UN) Has Announced A Dividend Of CA$0.051

Chartwell Retirement Residences (TSE:CSH.UN) has announced that it will pay a dividend of CA$0.051 per share on the 15th of October. This payment means that the dividend yield will be 3.9%, which is around the industry average.

View our latest analysis for Chartwell Retirement Residences

Chartwell Retirement Residences Might Find It Hard To Continue The Dividend

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Despite not being profitable, Chartwell Retirement Residences is paying out most of its free cash flow as a dividend. Generally paying a dividend without making profits isn't a great idea and we are also worried that there is limited reinvestment into the business.

Analysts expect the EPS to grow by 89.9% over the next 12 months. The company seems to be going down the right path, but it will take a little bit longer than a year to cross over into profitability. Unless this happens fairly soon, the dividend could start to come under pressure.

Chartwell Retirement Residences Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of CA$0.54 in 2014 to the most recent total annual payment of CA$0.612. This implies that the company grew its distributions at a yearly rate of about 1.3% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Chartwell Retirement Residences' EPS has fallen by approximately 40% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

We should note that Chartwell Retirement Residences has issued stock equal to 13% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

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. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for Chartwell Retirement Residences (1 is potentially serious!) that you should be aware of before investing. Is Chartwell Retirement Residences not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.