Extendicare (TSE:EXE) Will Pay A Dividend Of CA$0.04

The board of Extendicare Inc. (TSE:EXE) has announced that it will pay a dividend on the 15th of September, with investors receiving CA$0.04 per share. 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 Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

EPS is set to fall by 28.0% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 800%, which is definitely a bit high to be sustainable going forward.

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. Since 2012, the dividend has gone from CA$0.84 total annually to CA$0.48. Doing the maths, this is a decline of about 5.4% per year. 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

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. Over the past five years, it looks as though Extendicare's EPS has declined at around 28% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 2 of them are a bit unpleasant. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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