When it comes to dividend income, finding a monthly dividend stock can seem like a gold mine. The only problem, however, is that this can sometimes come along with poor returns. A high dividend yield can be a sign that the company isn’t doing all that well, causing shares to drop and the yield to climb higher.
But that’s not the case with Extendicare (TSX:EXE), a monthly dividend stock with a 6.57% yield and a long future ahead. So, let’s get into why it looks like a top dividend stock to pick up on the TSX today.
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Strong earnings
Let’s first look over its last earnings quarter to learn about why the company has been doing so well. Extendicare stock reported a revenue increase of 13.1% year over year for the first quarter (Q1) of 2024, driven by growth in both its long-term care (LTC) and home healthcare segments. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved significantly by $8.0 million to $20.3 million. This indicates improved operational efficiency and profitability.
Furthermore, the company has been actively expanding its presence in the LTC and managed services sectors. This includes a substantial increase in managed beds through transactions with Revera and Axium, positioning Extendicare as a key player in the market.
With $90.5 million in cash and cash equivalents as of March 31, 2024, and access to additional credit facilities, Extendicare maintains strong liquidity to support ongoing operations, strategic investments, and future growth opportunities.
Strong outlook
Yet even more growth is on the way for Extendicare stock. The Ontario Ministry of Long-Term Care implemented a significant 6.6% funding increase effective April 2024, which is expected to contribute approximately $21.3 million annually to Extendicare’s revenue. This funding is crucial for supporting operational stability and future growth initiatives, including redevelopment projects and enhanced service offerings.
As a leading provider of senior care services in Canada, Extendicare benefits from demographic trends, favouring increased demand for elderly care. Their strategic initiatives in LTC redevelopment and expansion of home healthcare services position them well to capitalize on these trends.
In the meantime, the stock is focused on improving occupancy rates (LTC occupancy increased by 90 basis points to 97.5%). This includes expanding its home healthcare services (11.4% increase in average daily volume), which underscores its effective management strategies in meeting growing demand.
Dividend growth
This is all happening while dividends continue to climb. Despite a competitive payout ratio of 57% in Q1 2024, Extendicare declared a monthly dividend of $0.04 per share, indicating confidence in their cash flow generation and commitment to returning value to shareholders.
Considering these factors, investing in Extendicare offers potential for capital appreciation driven by robust financial performance, strategic growth initiatives, favourable government policies, and a commitment to shareholder returns through dividends.
However, as with any investment, it’s important to consider risks such as regulatory changes, competitive pressures, and operational challenges in the healthcare sector. As always, investors should do their own research into this dividend stock to make sure it aligns with both your risk profile and overall goals.
