Only Four Days Left To Cash In On Chartwell Retirement Residences' (TSE:CSH.UN) 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. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase Chartwell Retirement Residences' shares before the 30th of May in order to receive the dividend, which the company will pay on the 16th of June.

The company's next dividend payment will be CA$0.051 per share. Last year, in total, the company distributed CA$0.61 to shareholders. Last year's total dividend payments show that Chartwell Retirement Residences has a trailing yield of 3.4% on the current share price of CA$18.01. 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.

We've discovered 4 warning signs about Chartwell Retirement Residences. View them for free.

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. Last year, Chartwell Retirement Residences paid out 297% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range for most companies.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Chartwell Retirement Residences fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

See our latest analysis for Chartwell Retirement Residences

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Chartwell Retirement Residences has grown its earnings rapidly, up 110% a year for the past five years.

We'd also point out that Chartwell Retirement Residences issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Chartwell Retirement Residences has lifted its dividend by approximately 1.3% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Chartwell Retirement Residences is keeping back more of its profits to grow the business.

The Bottom Line

Has Chartwell Retirement Residences got what it takes to maintain its dividend payments? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Chartwell Retirement Residences's dividend merits.

If you want to look further into Chartwell Retirement Residences, it's worth knowing the risks this business faces. Be aware that Chartwell Retirement Residences is showing 4 warning signs in our investment analysis, and 1 of those is a bit concerning...

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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.