Only Three Days Left To Cash In On Chartwell Retirement Residences' (TSE:CSH.UN) Dividend

Chartwell Retirement Residences (TSE:CSH.UN) is about to trade ex-dividend in the next three days. 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. Thus, you can purchase Chartwell Retirement Residences' shares before the 31st of July in order to receive the dividend, which the company will pay on the 15th of August.

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. Looking at the last 12 months of distributions, Chartwell Retirement Residences has a trailing yield of approximately 3.5% on its current stock price of CA$17.41. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. An unusually high payout ratio of 297% of its profit suggests something is happening other than the usual distribution of profits to shareholders. A useful secondary check can be to evaluate whether Chartwell Retirement Residences generated enough free cash flow to afford its dividend. Dividends consumed 51% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

View 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Chartwell Retirement Residences's earnings have been skyrocketing, up 110% per annum 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? Chartwell Retirement Residences has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. 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.

So if you want to do more digging on Chartwell Retirement Residences, you'll find it worthwhile knowing the risks that this stock faces. To that end, you should learn about the 3 warning signs we've spotted with Chartwell Retirement Residences (including 1 which is 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.

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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.