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The healthcare sector, particularly senior housing and care services, continues to be a significant focus in Canada due to the country's aging population. This environment supports companies like Extendicare , which operates within this sector and offers a reliable dividend for shareholders seeking stable income.
Extendicare's Growth in Senior Care
Extendicare (TSX:EXE) is a prominent provider of senior care across Canada, with a market capitalization of approximately $700 million. The company manages 123 long-term care homes and provides home healthcare services. Its business is expanding through joint ventures, management contracts, and redevelopment projects, which have positioned Extendicare well within the growing senior care market.
The rising demand for senior care services, driven by Canada's aging population, has positively impacted Extendicare's revenue. Government policies that increased funding for elderly care, particularly in the aftermath of the COVID-19 pandemic, have further strengthened the company’s financials. As a result, Extendicare has experienced improved operating margins, leading to a steady cash flow that supports its monthly dividend payments.
Financial Performance and Dividend Security
Extendicare has shown significant improvement in its financial performance. In the most recent quarter, the company saw a 13.3% increase in revenue, with average occupancy rates in its long-term care facilities rising to 97.8% from 93.5% two years ago. This growth has also translated into higher profitability, with net operating income (NOI) margins expanding across all business segments.
The long-term care segment, which generates a substantial portion of Extendicare’s revenue and earnings, saw its NOI margin increase from 7.6% a year ago to 13.2% in the latest quarter. Overall, the company’s total NOI margin rose to 15.2% from 9.3%, and the adjusted EBITDA margin achieved double-digit growth for the first time in eight quarters.
Steady Dividend Payout
Extendicare offers a monthly dividend of $0.04 per share, yielding approximately 5.8% annually. The company has maintained consistent dividend payments for over a decade, with the current payout ratio standing at 48% of the company’s adjusted funds from operations (AFFO) for the second quarter. This low payout ratio suggests that the dividend is sustainable and that the company has a solid cash flow to support it.
Although Extendicare once reduced its dividend in 2013 due to challenges in its U.S. operations, the company’s current focus on its Canadian market, supported by favorable healthcare policies, has provided greater financial stability. This environment suggests that Extendicare’s cash flow is likely to remain strong, supporting its dividend payments in the long term.
Key Considerations
While Extendicare demonstrates strong financial performance and favorable demographic trends, it’s important to note that factors such as regulatory changes, economic conditions, and shifts in healthcare policies could impact the company’s future performance. Despite these potential challenges, Extendicare’s stable financials and expanding operations position it as a reliable option for those seeking consistent income from dividends.
