Caring for seniors is not an exciting business, but it is well-positioned demographically. As the population ages, more people need assisted support, either in retirement residences or in their own homes.
One of the Canadian leaders in this field is Extendicare (TSX: EXE), which has been providing these services for over 50 years. I recommend it for investors who are looking for above-average cash flow and are not overly concerned about capital gains. Here are the details.
Type: Common stock
Current price: $8.36
Annual payout: $0.48
Yield: 5.7 per cent
The business: Extendicare is a leading provider of care and services for seniors throughout Canada. The company operates a network of 120 senior care and living centres (67 owned/53 managed), as well as providing home health care operations through ParaMed. It employs 23,700 people.
The security: I recommend the common stock of this company, which trades on the TSX under the symbol EXE. It is also available through the U.S. over-the-counter market, with the ticker EXETF.
Why I like it: The company can rely on steady income to fund its dividend, and the yield is a very attractive 5.7 per cent. There is not much upside potential to the stock in the short term, but for those interested in cash flow, that should not be a serious problem.
Financial highlights: Second-quarter revenue was $279.5 million, up 2.1 per cent from the same period in 2017. For the first half of the fiscal year, revenue was $550.9 million, a 1.5 per cent increase.
Net operating income from Canadian operations was up 11.3 per cent, to $36.3 million in the quarter, with a margin of 13 per cent compared with 11.9 per cent in the same period of 2017.
Adjusted funds from operations (AFFO) was $17.1 million ($0.194 per basic share), up $2.7 million from last year. For the first half, AFFO was $31.8 million ($0.360 per share) up $4.7 million. Dividends declared were $21.1 million, representing approximately 67 per cent of AFFO. This indicates there is ample coverage for the dividend.
Risks: The stock can be volatile at times. Over the past five years, it has ranged from a high of over $10 to a low of close to $6. It is currently in the middle of that range. As with most high-yielding dividend stocks, it is sensitive to interest rate risk. Obtaining qualified staff, especially personal support workers, is an ongoing problem.
There is also some political risk. Regulation of nursing homes is a provincial responsibility, and governments provide significant funding. A cutback in a provincial budget could negatively impact Extendicare’s revenue.
Distribution policy: The shares pay a monthly dividend of $0.04 each ($0.48 per year).
Tax implications: Payments are eligible for the dividend tax credit.
Summing up: Good income, limited growth potential. That’s Extendicare in a nutshell. Ask your financial advisor if it is suitable for your account.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.