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

The board of Extendicare Inc. (TSE:EXE) has announced that it will pay a dividend of CA$0.04 per share on the 15th of September. The dividend yield will be 7.4% based on this payment which is still above the industry average.

See our latest analysis for Extendicare

Extendicare Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Extendicare was paying out 2,838% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.

EPS is set to fall by 43.4% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 4,696%, which could put the dividend in jeopardy if the company's earnings don't improve.

Extendicare's Track Record Isn't Great

While the company's dividend hasn't been very volatile, it has been decreasing over time, which isn't ideal. The dividend has gone from an annual total of CA$0.84 in 2013 to the most recent total annual payment of CA$0.48. The dividend has shrunk at around 5.4% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though Extendicare's EPS has declined at around 43% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

The Dividend Could Prove To Be Unreliable

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. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Extendicare is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 5 warning signs for Extendicare you should be aware of, and 4 of them don't sit too well with us. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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