Get 5.6% yield from Extendicare Inc.

Worker shortages contributed to a 10.5% decline in cash flow for this company during the most-recent quarter.

However, revenue rose 1.6% as a new efficiency program and automated work processes continue target staff turnover.

The stock trades at just 12.5 times the company’s 2020 cash flow forecast.

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EXTENDICARE INC. (Toronto symbol EXE; owns 67 senior-care facilities in Canada. Together, they can house 8,950 residents on both a long- and short-term basis. The company manages another 53 residences that are home to 6,497 seniors.

Extendicare also operates 35 ParaMed Home Health Care branches in six provinces. ParaMed provides nursing care and other forms of assistance to clients who remain in their own homes.

In the three months ended June 30, 2019, the company’s revenue rose 1.6%, to $284.0 million from $279.5 million a year earlier. Cash flow per share fell 10.5%, to $0.17 from $0.19.

Reduced hours of service at ParaMed were the main reason for the cash flow decline. Like most home-care providers, that business continues to deal with a shortage of personal support workers (PSWs) and, to a lesser extent, nurses. However, Extendicare’s intensified employee retention programs—including a new Internet-based system to optimize scheduling and automate work processes—has so far this year cut its staff turnover by about 70% compared to the second half of 2018.

Dividend Stocks: New management and work processes on the way

Serving Canada’s aging population is a growing business. Meanwhile, Extendicare’s strong reputation should let it take advantage of that growth and keep its occupancy levels high.

Extendicare is in the middle of installing new management and a new Internet-based system to maximize its staffing and automate work processes. It appointed Ali Mir as VP of Operations in May. Mir has experience at both eHealth Ontario and Telus Health. Together, his addition plus other changes should deliver higher volumes and margins by the end of the year.

The company’s debt at the end of the quarter was $532.8 million, or a high 71% of its market cap. However, cash flow is steady and the business is growing.

The shares trade at just 12.5 times the forecast 2020 cash flow per share of $0.69 a share and yield a high 5.6%.

Recommendation in Stock Pickers Digest: Extendicare Inc. is a buy.


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