Stock Analysis

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

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

Advertisement

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.

Valuation is complex, but we're here to simplify it.

Discover if Extendicare might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

Access Free Analysis

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.