Extendicare (TSE:EXE) Is Paying Out A Dividend Of CA$0.04

Extendicare Inc. (TSE:EXE) has announced that it will pay a dividend of CA$0.04 per share on the 17th of June. The dividend yield will be 6.4% based on this payment which is still above the industry average.

See our latest analysis for Extendicare

Extendicare's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the dividend made up 115% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

EPS is set to grow by 46.5% over the next year if recent trends continue. If recent patterns in the dividend continue, the payout ratio in 12 months could be 76% which is a bit high but can definitely be sustainable.

Extendicare Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The payments haven't really changed that much since 10 years ago. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Extendicare has been growing its earnings per share at 47% a year over the past five years. Although earnings per share is up nicely Extendicare is paying out 115% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

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. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Extendicare has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Extendicare not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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