Stock Analysis

Dividend Investors: Don't Be Too Quick To Buy Sienna Senior Living Inc. (TSE:SIA) For Its Upcoming Dividend

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TSX:SIA
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Readers hoping to buy Sienna Senior Living Inc. (TSE:SIA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 28th of January, you won't be eligible to receive this dividend, when it is paid on the 12th of February.

Sienna Senior Living's next dividend payment will be CA$0.078 per share. Last year, in total, the company distributed CA$0.94 to shareholders. Calculating the last year's worth of payments shows that Sienna Senior Living has a trailing yield of 7.0% on the current share price of CA$13.46. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Sienna Senior Living

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sienna Senior Living paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Sienna Senior Living didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the past year it paid out 114% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
TSX:SIA Historic Dividend January 24th 2021

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Sienna Senior Living was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sienna Senior Living has delivered 1.0% dividend growth per year on average over the past 10 years.

We update our analysis on Sienna Senior Living every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

From a dividend perspective, should investors buy or avoid Sienna Senior Living? It's hard to get used to Sienna Senior Living paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. It's not that we think Sienna Senior Living is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of Sienna Senior Living don't faze you, it's worth being mindful of the risks involved with this business. For example - Sienna Senior Living has 3 warning signs we think you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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