Extendicare (TSE:EXE) Is Due To Pay A Dividend Of CA$0.04

The board of Extendicare Inc. (TSE:EXE) has announced that it will pay a dividend on the 17th of July, with investors receiving CA$0.04 per share. This means the annual payment is 6.6% of the current stock price, which is above the average for the industry.

See our latest analysis for Extendicare

Extendicare Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

If the company can't turn things around, EPS could fall by 36.3% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 2,017%, which is definitely a bit high to be sustainable going forward.

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 annual payment during the last 10 years was CA$0.84 in 2013, 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.

The Dividend Has Limited Growth Potential

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 36% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Extendicare's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Extendicare is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 4 warning signs for Extendicare that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of 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.