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

Sienna Senior Living Inc. (TSE:SIA) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Sienna Senior Living investors that purchase the stock on or after the 28th of September will not receive the dividend, which will be paid on the 13th of October.

The company's upcoming dividend is CA$0.078 a share, following on from the last 12 months, when the company distributed a total of CA$0.94 per share to shareholders. Last year's total dividend payments show that Sienna Senior Living has a trailing yield of 8.4% on the current share price of CA$11.12. If you buy this business for its dividend, you should have an idea of whether Sienna Senior Living's dividend is reliable and sustainable. As a result, readers should always check whether Sienna Senior Living has been able to grow its dividends, or if the dividend might be cut.

Check out 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 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. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out an unsustainably high 212% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Sienna Senior Living intends to continue funding this dividend, or if it could be forced to cut the payment.

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

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 reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sienna Senior Living has delivered an average of 1.0% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Remember, you can always get a snapshot of Sienna Senior Living's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Should investors buy Sienna Senior Living for the upcoming dividend? 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. Bottom line: Sienna Senior Living has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Sienna Senior Living despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Sienna Senior Living has 3 warning signs we think you should be aware of.

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.