Stock Analysis

Don't Buy Sienna Senior Living Inc. (TSE:SIA) For Its Next Dividend Without Doing These Checks

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TSX:SIA
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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sienna Senior Living Inc. (TSE:SIA) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 25th of February will not receive this dividend, which will be paid on the 15th of March.

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. Based on the last year's worth of payments, Sienna Senior Living has a trailing yield of 7.2% on the current stock price of CA$12.97. 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! 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.

See 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's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. 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. Sienna Senior Living paid out more free cash flow than it generated - 114%, to be precise - last year, which we think is concerningly 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 February 20th 2021

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. 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.

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.

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

Has Sienna Senior Living got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

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, we've found 3 warning signs for Sienna Senior Living that we recommend you consider before investing in the business.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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