Why It Might Not Make Sense To Buy Sienna Senior Living Inc. (TSE:SIA) For Its Upcoming Dividend

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. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Sienna Senior Living's shares before the 29th of June in order to be eligible for the dividend, which will be paid on the 15th of July.

The company's next dividend payment will be CA$0.078 per share. Last year, in total, the company distributed CA$0.94 to shareholders. Looking at the last 12 months of distributions, Sienna Senior Living has a trailing yield of approximately 5.7% on its current stock price of CA$16.39. 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 check whether the dividend payments are covered, and if earnings are growing.

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'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 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 138% 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.

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.

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.

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

Should investors buy Sienna Senior Living for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Sienna Senior Living and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 4 warning signs for Sienna Senior Living (2 are a bit concerning!) that deserve your attention before investing in the shares.

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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This article by Simply Wall St is general in nature. 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.
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