Do These 3 Checks Before Buying Sienna Senior Living Inc. (TSE:SIA) For Its Upcoming Dividend

It looks like Sienna Senior Living Inc. (TSE:SIA) is about to go ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Sienna Senior Living's shares before the 28th of April in order to receive the dividend, which the company will pay on the 13th of May.

The company's next dividend payment will be CA$0.078 per share, on the back of last year when the company paid a total of CA$0.94 to shareholders. Last year's total dividend payments show that Sienna Senior Living has a trailing yield of 6.2% on the current share price of CA$15.04. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Sienna Senior Living

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Sienna Senior Living paid out a disturbingly high 304% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Sienna Senior Living paid out more free cash flow than it generated - 111%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

As Sienna Senior Living's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see how much of its profit Sienna Senior Living paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Sienna Senior Living has grown its earnings rapidly, up 33% a year for the past five years. Sienna Senior Living's dividend was not well covered by earnings, although at least its earnings per share are growing quickly. Generally, when a company is growing this quickly and paying out all of its earnings as dividends, it can suggest either that the company is borrowing heavily to fund its growth, or that earnings growth is likely to slow due to lack of reinvestment.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Sienna Senior Living has delivered 1.0% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Sienna Senior Living is keeping back more of its profits to grow the business.

To Sum It Up

Is Sienna Senior Living worth buying for its dividend? While it's nice to see earnings per share growing, we're curious about how Sienna Senior Living intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. Bottom line: Sienna Senior Living has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Sienna Senior Living. For example, we've found 5 warning signs for Sienna Senior Living (3 can't be ignored!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.