Here's Why We're Wary Of Buying Chartwell Retirement Residences' (TSE:CSH.UN) For Its Upcoming Dividend

Readers hoping to buy Chartwell Retirement Residences (TSE:CSH.UN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Chartwell Retirement Residences investors that purchase the stock on or after the 29th of April will not receive the dividend, which will be paid on the 15th of May.

The company's next dividend payment will be CA$0.051 per share, on the back of last year when the company paid a total of CA$0.61 to shareholders. Based on the last year's worth of payments, Chartwell Retirement Residences has a trailing yield of 4.9% on the current stock price of CA$12.59. If you buy this business for its dividend, you should have an idea of whether Chartwell Retirement Residences's dividend is reliable and sustainable. So we need to investigate whether Chartwell Retirement Residences can afford its dividend, and if the dividend could grow.

See our latest analysis for Chartwell Retirement Residences

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Chartwell Retirement Residences reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Chartwell Retirement Residences didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year it paid out 70% of its free cash flow as dividends, within the usual range for most companies.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Chartwell Retirement Residences was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Chartwell Retirement Residences has lifted its dividend by approximately 1.3% a year on average.

Remember, you can always get a snapshot of Chartwell Retirement Residences's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Is Chartwell Retirement Residences worth buying for its dividend? It's hard to get used to Chartwell Retirement Residences paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Chartwell Retirement Residences is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of Chartwell Retirement Residences don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 2 warning signs for Chartwell Retirement Residences you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.