The board of Chartwell Retirement Residences (TSE:CSH.UN) has announced that it will pay a dividend on the 15th of November, with investors receiving CA$0.051 per share. This makes the dividend yield 5.0%, which will augment investor returns quite nicely.
Chartwell Retirement Residences Might Find It Hard To Continue The Dividend
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Chartwell Retirement Residences is not generating a profit, and despite this is paying out most of its free cash flow as a dividend. Paying a dividend while unprofitable is generally considered an aggressive policy, and with limited funds retained for reinvestment, growth may be slow.
Over the next year, EPS is forecast to expand by 19.7%. The company seems to be going down the right path, but it will take a little bit longer than a year to cross over into profitability. Unless this can be done in short order, the dividend might be difficult to sustain.
Chartwell Retirement Residences Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was CA$0.54 in 2011, and the most recent fiscal year payment was CA$0.61. This works out to be a compound annual growth rate (CAGR) of approximately 1.3% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
Dividend Growth Is Doubtful
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that Chartwell Retirement Residences' earnings per share has fallen at approximately 7.7% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Chartwell Retirement Residences (1 is significant!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.