Image source: Getty Images
We are an aging population, and as a result, senior living and care services are a lucrative industry in Canada. Investors looking for a reliable passive income stream for a secure retirement could purchase shares in a senior care provider, receive steady monthly dividends, and enjoy the peace of mind that their seemingly secure passive income covers the monthly bills.
Senior housing provider Extend (TSX:EXE) is a high dividend stock whose 5.8% yield payout qualifies as a safe dividend choice due to its expanding commercial footprint, increased government funding, strong balance sheet, well-covered dividend payout, and a continually growing customer base from an aging population.
Extendicare: A growing player that pays dividends in senior care
Extendicare provides care and services to a growing population of seniors across Canada. The $700 million company operates a network of 123 long-term care homes and offers home health care services. Additionally, its business presence continues to expand through joint ventures, management contracts and profitable redevelopment projects.
Demand for Extendicare’s services is increasing with Canada’s aging population. Additionally, favorable government policies that increased public funding for senior care following the COVID-19 pandemic significantly boosted the company’s revenues. Operating profit margins have recently expanded, and as a result, the company is generating highly recurring cash flow to fund its stable monthly dividend.
Extendicare has demonstrated improved operating performance, with operating margins significantly expanded in the most recent quarter. Additionally, increased funding from provincial governments, joint ventures and rate increases contributed to 13.3% growth in second-quarter revenue. Additionally, average occupancy rates at its long-term care facilities have improved to 97.8% from 93.5% two years ago.
Most importantly, profitability has improved significantly. Extendicare has achieved substantial increases in net operating income (NOI) margins across all three business segments.
Notably, the company's long-term care (LTC) segment, which accounts for the majority of its revenue and earnings, expanded its NOI margin from 7.6% a year ago to 13.2% last quarter. The company's total NOI margin increased to 15.2% from 9.3% a year ago, and the adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) margin increased to double-digit levels for the first time in eight quarters.
A safe dividend stock on TSX to generate monthly passive income
Extendicare pays a monthly dividend of $0.04 per share. The payment has an annual yield of approximately 5.8%. Investors in EXE stock have received a consistent monthly dividend payment for over 10 years, since June 2013.
Accordingly, due to significant improvements in the Company’s operating environment, Extendicare’s monthly dividend looks much more secure today. The dividend comprised 48% of the Company’s Adjusted Funds from Operations (AFFO) for the second quarter, on a fully diluted basis. AFFO represents distributable cash flow from the Company’s operations, and payout ratios below 100% can be sustainable for decades. Extendicare’s AFFO per share more than doubled year-over-year to $0.27 per share during the most recent quarter, up from $0.11 per share during a comparable quarter in 2023.
However, Extendicare's dividend has not always been a secure one. The company cut its payout by 43% in May 2013 as its U.S. operations (which it later sold) faced political and financing uncertainties. The company's cash flow has been more visible since it exited the U.S. senior care market. However, its Canadian operations, supported by favorable public health care policies, could support strong and sustainable cash flow generation over the long term.
Dividend investors will be able to enjoy EXE's monthly dividend payments for decades to come and sleep easy as the senior care provider's dividend takes care of some of their monthly bills during an extended retirement.
Conclusion for investors
While Extendicare presents an increasingly attractive dividend investment opportunity, it is essential to consider the potential risks. Regulatory changes, economic downturns, and changes in healthcare policies could impact the company's future performance.
However, Extendicare's strong financial performance, favorable demographic trends, and expanding operations make it an attractive dividend stock on the TSX for investors looking for secure passive income streams. The company's stable monthly dividend makes it a worthwhile option for retirement income portfolios.