Extendicare Inc. (TSE:EXE) has announced that it will pay a dividend of CA$0.04 per share on the 17th of October. The dividend yield will be 6.8% based on this payment which is still above the industry average.
Extendicare Is Paying Out More Than It Is Earning
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 585% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.
EPS is set to fall by 28.0% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 801%, which could put the dividend in jeopardy if the company's earnings don't improve.
Extendicare's Track Record Isn't Great
The dividend is currently lower than it was 10 years ago, indicating that there has been a downward trend over that time. Since 2012, the dividend has gone from CA$0.84 total annually to CA$0.48. This works out to be a decline of approximately 5.4% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth Potential Is Shaky
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Extendicare's EPS has fallen by approximately 28% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
The Dividend Could Prove To Be Unreliable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 5 warning signs for Extendicare (2 can't be ignored!) that you should be aware of before investing. Is Extendicare not quite the opportunity you were looking for? Why not check out 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.
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