Invest in This 6.45% Dividend Stock for Passive Income

Chartwell Retirement Residences is recovering from the pandemic, and remains a solid option for investors looking for passive income.

| More on:
A plant grows from coins.

Source: Getty Images

A steady and reliable passive-income stream: it’s the dream that many of us strive for. It promises worry-free nights, financial flexibility, and a life of financial security. Dividend stocks can help us achieve this dream. But with so many to choose from, it may seem daunting.

But let’s get started by considering Chartwell Retirement Residences REIT (TSX:CSH.UN), Canada’s largest provider and owner of seniors housing communities from independent living to long-term care.

Retirement homes and senior living settings have come under intense pressure in the last three years. This resulted in significantly lower occupancy rates and cash flows as well as huge staffing shortages. It also resulted in a 32% decline in Chartwell’s stock price over the last three years.

Yet despite all of this turmoil, the dividend has remained intact. This demonstrates management’s commitment to it, as well as their belief that the business will rebound as the pandemic resolves. And this is what is, in fact, happening. After falling sharply in 2021 and 2022, revenue and earnings are heading sequentially higher.

Let’s take the latest reported quarter, the third quarter (Q3) of 2022. While revenue declined sharply versus the same quarter last year, occupancy is rising. In fact, it rose 60 basis points in the quarter, with another 40-basis-point increase in October. This translates into an occupancy rate of 77.7% in September and 78.1% in October. While this is a far cry from rates of above 90% before the pandemic, the point here is that it’s heading in the right direction.

The positive long-term secular trends remain, as the biggest demographic trend at work today is the aging population. Despite covid-related challenges, demand for retirement living and senior care are poised to continue to rise over the next many years.

Passive income: Sustainability of the dividend

The question of dividend sustainability is top of mind these days, especially for a company like Chartwell. I mean, this is a capital-intensive business — one that’s been financed in a big way through debt. Now that interest rates are higher and heading even higher, what impact will this have on Chartwell’s financials?

As of the end of last quarter, Chartwell was in an acceptable liquidity position of $182 million, including $25 million in cash and cash equivalents. Also, mortgage maturities are staggered over an average of 6.2 years. The company’s dividend is well above 100% of income, but its cash flow covers it — it’s not perfect but acceptable for now, in my view.  

Rising interest rates are a negative for Chartwell, as there’s a heavily reliance on debt. But by the same token, higher rates will mean higher interest income for seniors. This can translate into better affordability for seniors looking into a retirement residence.

Strong outlook for CSH.UN

Pandemic problems notwithstanding, Chartwell Retirement Residences are meeting a clear need for the Canadian population. People need help and care, as they head into their senior years, and Chartwell is a good option to provide this.

Going forward, Chartwell’s priorities are to increase occupancy in its residences and to solve the staffing crisis. Management is deploying many resources to achieve these goals, and they expect to see the fruits of this labour in the next couple of years.

In the meantime, investors who are looking for passive dividend income should consider this 6.45%-yielding dividend stock, CSH.UN.

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 Karen Thomas 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

A worker uses a double monitor computer screen in an office.
Dividend Stocks

2 of the Best Canadian Stocks That Pay Out Monthly

These two Canadian dividend stocks are some of the best to buy, offering yields upwards of 5.4% and returning cash…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Passive-Income Seekers: 4 Safe Dividend Stocks to Own Beyond 2033

Dividend stocks are great, but only if they continue to perform after downturns as well. In the case of these…

Read more »

clock time
Dividend Stocks

How Investors Can Build a $1 Million Portfolio in 12 Years

If you can handle it, you can certainly create a million-dollar portfolio in just 12 years, especially considering this dividend…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

4 Big Dividend-Paying Stocks for 2023

These four stocks all earn strong cash flow and offer attractive dividend yields, making them some of the best to…

Read more »

grow dividends
Dividend Stocks

This 7.5 Percent Dividend Stock Pays Cash Every Month

If you need cash now, this dividend stock is certainly one I would consider that could double in share price…

Read more »

Path to retirement
Dividend Stocks

Need Passive Income? Turn $6,000 Into $106 Every Month

Find the right dividend stock for stable growth and you can turn $6,000 into $106 each month!

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

2 Top Stocks to Supercharge Your TFSA Into a Cash Cow

IA Financial and Brookfield Renewable Partners are great passive income generators for new TFSA investors.

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

Invest in This 7.5% Dividend Stock for Passive Income

This dividend stock could provide you with double the amount of annual passive income by investing now instead of at…

Read more »