It Might Not Be A Great Idea To Buy Sienna Senior Living Inc. (TSE:SIA) For Its Next Dividend
It looks like Sienna Senior Living Inc. (TSE:SIA) is about to go ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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 April will not receive the dividend, which will be paid on the 13th of May.
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. Based on the last year's worth of payments, Sienna Senior Living has a trailing yield of 6.2% on the current stock price of CA$15.04. 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.
See 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. An unusually high payout ratio of 304% of its profit suggests something is happening other than the usual distribution of profits to shareholders. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the past year it paid out 111% 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.
Cash is slightly more important than profit from a dividend perspective, but given Sienna Senior Living's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Click here to see how much of its profit Sienna Senior Living paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Sienna Senior Living has grown its earnings rapidly, up 33% a year for the past five years. Earnings per share are increasing at a rapid rate, but the company is paying out more than we are comfortable with, based on current earnings. Generally, when a company is growing this quickly and paying out all of its earnings as dividends, it can suggest either that the company is borrowing heavily to fund its growth, or that earnings growth is likely to slow due to lack of reinvestment.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sienna Senior Living has delivered 1.0% dividend growth per year on average over the past 10 years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
Should investors buy Sienna Senior Living for the upcoming dividend? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
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 5 warning signs for Sienna Senior Living (3 shouldn't be ignored!) that deserve your attention before investing in the shares.
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.
