Better Buy: Chartwell Stock or Sienna Senior Living?

Both Chartwell and Sienna stock could be good total-return stocks for higher-risk investors. They can provide juicy income along the way, too.

| More on:
Retirees sip their morning coffee outside.

Source: Getty Images

Stocks in the senior housing sector were hit hard in the 2020 pandemic year with reduced occupancy. From the 2020 market crash bottom, the senior housing stocks appreciated about 60-70% from trough to peak.

They have sold off again this year. Challenges include labour shortages, higher inflation, and higher interest rates, which have increased operating costs and pressured margins. This could be another buy-the-dip opportunity for investors for potential capital gains in addition to pocketing some nice income along the way.

CSH.UN Chart

CSH.UN and SIA data by YCharts

Let’s compare two senior housing stocks, Chartwell Retirement Residences (TSX:CSH.UN) and Sienna Senior Living (TSX:SIA), for a potential buy. Their market caps are about $1.9 billion and $798 million, respectively.

The businesses

Based on adjusted net operating income (NOI), about 90% of Chartwell’s portfolio is in retirement operations with the remainder in long-term-care operations. About 62% of its portfolio is in Ontario, 29% in Quebec, 10% in British Columbia, and 8% in Alberta.

Chartwell’s retirement operations experienced year-to-date occupancy of 77.2%. It expects to improve the occupancy rate to 95% by 2025. For the record, the last time it experienced an occupancy rate of +90% was in 2018.

Sienna’s portfolio consists of about 93 long-term-care or retirement residences. It owns and operates seniors’ living residences in British Columbia, Saskatchewan, and Ontario. Sienna’s retirement portfolio saw an average occupancy rate of 86.5% year to date.

Dividends

Chartwell stock yields 7.6% at writing. Although its payout ratio is extended this year, management noted that the real estate stock has sufficient liquidity to cover its distributions. Improving occupancy will also improve the safety of its distributions.

Chartwell’s cash distribution typically has a high percentage of return of capital that reduces investors’ cost base and are ultimately taxed like capital gains. However, in 2023, it expects the majority of its distributions to be eligible dividends. So, for interested investors buying a new position, they could buy units in non-registered accounts, Tax-Free Savings Accounts (TFSAs), or Registered Education Savings Plans (RESPs).

Sienna pays out eligible dividends. So, it’s good for holding in non-registered accounts, unless you have room in a TFSA or RESP. At writing, it yields 8.5%. Its payout ratio of under 100% is a little safer.

Both stocks pay out monthly cash distributions. So, they could be good income stocks.

Outlook

As Chartwell is exiting its long-term-care operations in Ontario, it expects to receive net proceeds of $202.9 million assuming the transaction will close by the end of the year. Management is planning to use the net proceeds to pay down debt, which is a good idea given a higher cost of borrowing from rising interest rates. If management is able to improve its occupancy, the value stock could turn around over the next few years.

The long-term outlook for the sector looks intact. Sienna noted in its third-quarter report that the “long-term demand fundamentals in Canadian seniors living remain strong… our sector’s resiliency is largely driven by the rising needs of seniors, who make up the fastest-growing demographic in Canada.”

The Foolish investor takeaway

Between the two, Sienna appears to be a little safer with higher occupancy and a lower payout ratio. At $10.95 per share at writing, analysts believe the undervalued stock has about 32% upside potential over the next 12 months. That said, for the higher risk that investors are taking in Chartwell, they could potentially pocket upside of about 41% over the next 12 months based on the quotation of $8.05 per share at writing. In any case, it would be safer for interested investors to have an investment horizon of three to five years to allow time for the businesses to turn around.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Increasing yield
Dividend Stocks

Boost Your Passive Income With These 3 High-Yielding Dividend Stocks

These three dividend stocks offer healthy dividend yields and stable cash flows to grow your passive income.

Read more »

Illustration of bull and bear
Dividend Stocks

Protect Your Wealth: 2 Defensive Gems to Buy in 2023

Looking to pick up some defensive gems for your portfolio? Protect your wealth by buying one of these stellar stocks…

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

1 Oversold Dividend Stock (Yielding 6.5%) to Buy in the New Year

Here's why SmartCentres REIT (TSX:SRU.UN) is one top dividend stock long-term investors should consider in this current environment.

Read more »

Man data analyze
Dividend Stocks

2 Top Dividend Stocks to Buy and Hold for Life

Dividend stocks like Canadian National Railway and TD Bank are excellent long-term assets to buy and hold.

Read more »

money cash dividends
Dividend Stocks

Top Canadian Dividend Stocks Yielding over 5% in January 2023

Canadian dividend stocks will remain in the limelight this year amid the above-average market volatility.

Read more »

office buildings
Dividend Stocks

These 2 Canadian Dividend Stocks are a Retiree’s Best Friend

Retirees have enough to worry about, and cash is certainly high up on that list. So create some income each…

Read more »

protect, safe, trust
Dividend Stocks

3 of the Safest Dividend Stocks on Earth Right Now

The safest dividend stocks are those that pay out safe dividends and are trading at good valuations. Here are some…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 TSX Dividend Stocks With Seriously Huge Payouts

Not all high-yield stocks are risky. Some are simply victims of weak markets and adverse circumstances, making them viable additions…

Read more »