Why It Might Not Make Sense To Buy Sienna Senior Living Inc. (TSE:SIA) For Its Upcoming Dividend
Sienna Senior Living Inc. (TSE:SIA) stock is about to trade ex-dividend in four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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. This means that investors who purchase Sienna Senior Living's shares on or after the 30th of August will not receive the dividend, which will be paid on the 15th of September.
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. Last year's total dividend payments show that Sienna Senior Living has a trailing yield of 8.0% on the current share price of CA$11.65. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
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 reported a loss last year, so it's not great to see that it has continued paying a dividend. 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 dividends equivalent to 212% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Sienna Senior Living intends to continue funding this dividend, or if it could be forced to cut the payment.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Sienna Senior Living has increased its dividend at approximately 1.0% a year on average.
We update our analysis on Sienna Senior Living every 24 hours, so you can always get the latest insights on its financial health, here.
Final Takeaway
Is Sienna Senior Living an attractive dividend stock, or better left on the shelf? 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." It's not that we think Sienna Senior Living is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
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. In terms of investment risks, we've identified 3 warning signs with Sienna Senior Living and understanding them should be part of your investment process.
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.
