Extendicare (TSE:EXE) Has Announced A Dividend Of CA$0.04

By
Simply Wall St
Published
December 21, 2021
TSX:EXE
Source: Shutterstock

Extendicare Inc.'s (TSE:EXE) investors are due to receive a payment of CA$0.04 per share on 17th of January. This makes the dividend yield 6.8%, which will augment investor returns quite nicely.

See our latest analysis for Extendicare

Extendicare Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Earnings per share could rise by 1.1% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 156%, which probably can't continue without starting to put some pressure on the balance sheet.

historic-dividend
TSX:EXE Historic Dividend December 21st 2021

Extendicare's Track Record Isn't Great

The dividend is currently lower than it was 10 years ago, indicating that there has been a downward trend over that time. The first annual payment during the last 10 years was CA$0.84 in 2011, and the most recent fiscal year payment was CA$0.48. Doing the maths, this is a decline of about 5.4% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Extendicare May Find It Hard To Grow The Dividend

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. However, Extendicare's EPS was effectively flat over the past five years, which could stop the company from paying more every year. So the company has struggled to grow its EPS yet it's still paying out 158% of its earnings. This gives limited room for the company to raise the dividend in the future.

Extendicare's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Extendicare's payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Extendicare (2 make us uncomfortable!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.