It Might Not Be A Great Idea To Buy Sienna Senior Living Inc. (TSE:SIA) For Its Next Dividend

By
Simply Wall St
Published
August 22, 2020
TSX:SIA
Source: Shutterstock

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Sienna Senior Living Inc. (TSE:SIA) is about to go ex-dividend in just four days. If you purchase the stock on or after the 28th of August, you won't be eligible to receive this dividend, when it is paid on the 15th of September.

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. Last year's total dividend payments show that Sienna Senior Living has a trailing yield of 9.0% on the current share price of CA$10.37. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Sienna Senior Living can afford its dividend, and if the dividend could grow.

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 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 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 last year it paid out 70% of its free cash flow as dividends, within the usual range for most companies.

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

historic-dividend
TSX:SIA Historic Dividend August 23rd 2020

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. 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.

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 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.

Final Takeaway

Is Sienna Senior Living an attractive dividend stock, or better left on the shelf? It's hard to get used to Sienna Senior Living paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Sienna Senior Living as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 2 warning signs for Sienna Senior Living that we strongly recommend you have a look at before investing in the company.

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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