Month-to-month Dividend Inventory In Focus: Extendicare

Up to date on October fifteenth, 2024 by Felix Martinez

Extendicare (EXETF) has two interesting funding traits:

#1: It’s a high-yield inventory primarily based on its 5.2% dividend yield.
Associated: Record of 5%+ yielding shares.
#2: It pays dividends month-to-month as an alternative of quarterly.
Associated: Record of month-to-month dividend shares

You’ll be able to obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter, like dividend yield and payout ratio) by clicking on the hyperlink beneath:

The mixture of a excessive dividend yield and a month-to-month dividend makes Extendicare interesting to income-oriented buyers. As well as, the corporate is ideally positioned to profit from the secular progress of demand for healthcare providers. On this article, we are going to talk about Extendicare’s prospects.

Enterprise Overview

By its subsidiaries, Extendicare supplies care and providers for seniors in Canada. The corporate presents long-term care (LTC) providers, house well being care providers, comparable to nursing care, occupational, bodily, and speech remedy, help with each day actions, and contract and consulting providers to 3rd events. It operates LTC houses, retirement communities, and residential healthcare operations underneath the Extendicare, ParaMed, Extendicare Help, and SGP Companion Community manufacturers. The corporate was integrated in 1968 and is predicated in Markham, Canada.

Extendicare operates or supplies contract providers to a community of 103 long-term care houses and retirement communities (52 owned/71 contract providers), offering roughly 10.5 million hours of house well being care providers per 12 months.

Supply: Investor Presentation

Extendicare has been harm by the coronavirus disaster, which has brought about many issues within the firm’s each day operations. COVID-19, influenza, and different viruses have resulted in abnormally excessive worker absenteeism, thus exacerbating an already tight labor market. Because of this, Extendicare has seen its working prices enhance considerably because the onset of the coronavirus disaster.

The corporate reported robust second-quarter 2024 monetary outcomes, with adjusted EBITDA rising by $19.7 million, reaching $34.5 million. This enchancment was pushed by elevated funding in long-term care (LTC) and residential well being care, together with quantity progress in each areas. The corporate’s house well being care providers noticed a ten.8% rise in common each day quantity, whereas LTC occupancy elevated to 97.8%. Extendicare additionally expanded its managed providers, including extra beds underneath administration and benefiting from the Revera and Axium transactions. Vital asset gross sales contributed extra earnings, with the corporate finishing gross sales of a 256-bed LTC mission and a vacated LTC house.

Monetary highlights for Q2 2024 included a 13.3% income enhance to $348.5 million, pushed by larger LTC funding, occupancy enhancements, and progress in managed providers. Internet working earnings (NOI) rose to $52.8 million, with adjusted EBITDA climbing to $38.6 million. Internet earnings for the quarter surged by $23.9 million to $25.9 million. Extendicare’s robust operational efficiency, mixed with favorable demographic traits, helps its outlook for sustained progress throughout all enterprise segments. The corporate’s liquidity stays stable, with $136.4 million in money and entry to extra credit score.

For the primary six months of 2024, Extendicare’s income grew by 13.2% to $715.6 million, and web earnings reached $39 million, reflecting improved efficiency throughout LTC, house well being care, and managed providers. The corporate’s strategic transactions, together with the Revera and Axium offers, contributed to its general progress and profitability. Extendicare stays targeted on long-term care redevelopment and plans to proceed leveraging its monetary energy and operational enhancements to drive future progress.

Development Prospects

Extendicare is ideally positioned to profit from a powerful secular pattern, specifically the rising demand for healthcare providers. The demand for well being care from seniors who’re above 85 years previous is rising at a 4% common annual charge.

Supply: Investor Presentation

Furthermore, there may be an immense backlog of demand for long-term care beds, with greater than 39,000 seniors ready for a mattress in Ontario alone. In keeping with official estimates, there shall be a necessity for greater than 200,000 new long-term care beds in Canada by 2035. Due to its 55-year expertise on this enterprise, Extendicare is ideally poised to profit from the secular progress within the demand for well being care providers.

Then again, buyers needs to be conscious that Extendicare has exhibited a risky efficiency report. Because of the aforementioned impression of the pandemic on its enterprise, the corporate has not grown its earnings per share over the past decade. Due to this fact, the inventory is appropriate just for affected person buyers, who can endure prolonged durations of poor enterprise efficiency and inventory value volatility and stay targeted in the long term. Given the low comparability base shaped this 12 months, we anticipate the corporate to develop its earnings per share by about 5.0% per 12 months on common over the subsequent 5 years.

Dividend & Valuation Evaluation

Extendicare is presently providing a 5.2% dividend yield. It’s thus an attention-grabbing candidate for income-oriented buyers however the latter needs to be conscious that the dividend might fluctuate considerably over time as a result of fluctuation of the trade charges between the Canadian greenback and the USD.

The corporate has a good payout ratio of 68%. On the intense aspect, its web debt is standing at $441 million, which is 80% of its market capitalization, and therefore it’s manageable. To chop a protracted story brief, the 5.2% dividend isn’t more likely to be reduce within the close to future, however it’s not solely protected in the long term, given the fabric curiosity expense of the corporate.

Furthermore, Extendicare has not grown its dividend (in USD) over the past ten years, partly as a result of devaluation of the Canadian greenback vs. the USD. Due to this fact, it’s prudent for buyers to not anticipate materials dividend progress going ahead.

In reference to the valuation, Extendicare is presently buying and selling for 12.9 instances its earnings per share within the final 12 months. We assume a good price-to-earnings ratio of 10.0 for the inventory. Due to this fact, the present earnings a number of is larger than our assumed truthful price-to-earnings ratio. If the inventory trades at its truthful valuation stage in 5 years, it’ll have a -2.2% annualized compression yearly for the subsequent 5 years.

Making an allowance for the 5% annual progress of earnings per share, the 5.2% dividend, and a -2.2% annualized compression of valuation stage, Extendicare may provide a 8% common annual complete return over the subsequent 5 years. That is actually an truthful anticipated return. Nonetheless, the inventory is appropriate just for affected person buyers who’re snug with the risky enterprise efficiency and the inventory value of Extendicare.

Closing Ideas

Extendicare has a stable enterprise mannequin and significantly advantages from the rising demand for healthcare providers. The inventory presents a horny dividend yield of 5.2% with a wholesome payout ratio of 68%, making it a horny candidate for the portfolios of income-oriented buyers. The inventory has an anticipated return of 8% per 12 months over the subsequent 5 years.

Then again, buyers ought to pay attention to the chance ensuing from the corporate’s considerably weak stability sheet and its uneven enterprise efficiency. Due to this fact, the inventory is appropriate just for affected person buyers, who can ignore inventory value volatility and stay targeted in the long term.

Furthermore, Extendicare is characterised by exceptionally low buying and selling quantity. Which means it’s arduous to determine or promote a big place on this inventory.

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