Chartwell Retirement Residences (TSE:CSH.UN) has announced that it will pay a dividend of CA$0.051 per share on the 15th of March. This payment means that the dividend yield will be 5.0%, which is around the industry average.
View our latest analysis for Chartwell Retirement Residences
Chartwell Retirement Residences Might Find It Hard To Continue The Dividend
We aren't too impressed by dividend yields unless they can be sustained over time. Chartwell Retirement Residences is unprofitable despite paying a dividend, and it is paying out 104% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.
Looking forward, earnings per share is forecast to fall by 59.5% over the next year. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.
Chartwell Retirement Residences Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was CA$0.54, compared to the most recent full-year payment of CA$0.612. This means that it has been growing its distributions at 1.3% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
The Dividend Has Limited Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Chartwell Retirement Residences' EPS has declined at around 12% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Chartwell Retirement Residences' payments, as there could be some issues with sustaining them into the future. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 3 warning signs for Chartwell Retirement Residences that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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