Enjoy 6.5% yield from Extendicare

Government funding is playing a significant role in this firm’s fortunes as the Ontario government in particular is stepping up to ensure quality home healthcare for its residents.

That and the company’s initiative to expand its offerings (and therefore its cash flow) should keep the high yield sustainable and safe. Meanwhile the company’s revenues are growing and it continues to buy back shares to boost earnings.

The stock trades at 17.1 times the company’s forward earnings forecast.

EXTENDICARE INC. (Symbol EXE on Toronto; www.extendicare.com) owns and operates long-term care homes. Investors also tap the company’s ParaMed Home Health Care branches. ParaMed provides nursing care and other forms of assistance to clients who remain in their own homes.

The company continues to pay monthly distributions of $0.04 a share; the annual rate of $0.48 yields a very high 6.5%. Its payout ratio is 66%.

The company’s revenue rose 12.8% in the quarter ended December 31, 2023, to $350.2 million from $310.4 million a year earlier. The gain was mainly due to increased government funding, higher long-term-care occupancy rates, and higher home healthcare visits.

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Overall cash flow in the quarter jumped 908.5%, to $19.1 million from $1.9 million. Cash flow per share increased 950.0%, to $0.21 from $0.02 on fewer outstanding shares.

As part of the Ontario government’s $1 billion investment over the next three years to expand home care services in the province, the government increased home health care rates by 3% for personal support contracts and 5% for nursing and allied health contracts effective April 1, 2022.

This is why the current dividend still appears safe as occupancy rates continue to improve. The company is also proceeding with 20 redevelopment projects, comprising 4,248 new or replacement beds. Those factors should improve its long-term cash flows.

Dividend Stocks: Share buybacks continue to boost shareholder value

In May 2022, the company sold its Esprit Retirement Communities, a collection of 11 retirement communities and 1,048 retirement living suites in Ontario and Saskatchewan. It received $253.6 million. Extendicare used $117.1 million of the net proceeds to repay all its debt related to the retirement properties. It also realized a $78.8 million gain on the sale.

That lets the company focus on expanding its long-term-care and home health care segments. That’s where it feels it can best use its expertise and scale to drive future revenue and cash flow.

Meanwhile, Extendicare continues to buy back shares. Under approval from the TSX for the period from June 30, 2023, until expiry on June 29, 2024, the company repurchased 1.1 million of its shares at an average price of $6.23.

Over the next year, it plans to keep buying back more of its stock.

Stock buybacks reduce the total number of shares outstanding. That boosts earnings per share since profit is divided among fewer shares. The higher per-share earnings make the stock more attractive to investors and helps to increase share prices.

The shares currently yield a high 6.5%.

Recommendation in Dividend Advisor: Extendicare Inc. is a buy.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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