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The board of Sienna Senior Living Inc. (TSE:SIA) has announced that it will pay a dividend of CA$0.078 per share on the 15th of April. The dividend yield will be 5.8% based on this payment which is still above the industry average.
Check out our latest analysis for Sienna Senior Living
Sienna Senior Living's Projections Indicate Future Payments May Be Unsustainable
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Sienna Senior Living was paying out 186% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.
Earnings per share could rise by 29.8% over the next year if things go the same way as they have for the last few years. If the dividend continues on its recent course, the payout ratio in 12 months could be 173%, which is a bit high and could start applying pressure to the balance sheet.
Sienna Senior Living Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was CA$0.90, compared to the most recent full-year payment of CA$0.936. Its dividends have grown at less than 1% per annum over this time frame. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
Dividend Growth Could Be Constrained
The company's investors will be pleased to have been receiving dividend income for some time. Sienna Senior Living has impressed us by growing EPS at 30% per year over the past five years. While EPS is growing rapidly, Sienna Senior Living paid out a very high 186% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.
An additional note is that the company has been raising capital by issuing stock equal to 26% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
Sienna Senior Living's Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Sienna Senior Living's 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.