The primary consideration of income investors when investing in dividend payers is payout consistency to ensure a steady passive-income stream. A cut or stop in dividend payments is a letdown, and the company will likely lose investors. However, stocks paying monthly dividends are appealing because you can incorporate the investment income with living expenses.
Most monthly dividend payers are real estate investment trusts (REITs) or belong to the real estate sector. The reason is obvious: the business follows a monthly cycle and collects rents. If REITs don’t appeal to you, the next-best option is Extendicare (TSX: EXE) in the medical care facilities industry.
The provider of long-term-care (LTC), home health care, and other services for Canadian seniors is nearly 60 years old. Besides the lucrative 5.06% dividend yield, this healthcare stock pays reliable monthly income.
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Uniquely positioned
Dr. Michael Guerriere, chief executive officer of Extendicare, the $944.85 million Markham-based company is uniquely positioned to capitalize on industry trends. The primary objective is to broaden the footprint in Canada to meet the aging population’s demands. He added that the focused growth strategy and commitment to reinvesting in Canada should result in an expanded market presence along the continuum of care.
Besides the size and scale, Extendicare boasts strong growth and revenue stability. Since 90% of revenue comes from government contracts, the business has instant insulation from economic cycles. Management sees compelling growth opportunities in a growing demographic.
One of the near-term plans is establishing and leveraging partnerships with other care providers. It should accelerate the integration of seniors’ care with the rest of Canada’s health system. The strategic direction is to use technology to improve communications and leverage data analytics to drive improved delivery of seniors’ care service.
Financial performance
Extendicare has yet to present its fourth quarter (Q4) and full-year 2024 results. However, the financial results after three quarters were already impressive. In the nine months ending September 30, 2024, revenue increased 12.55% year over year to $1.07 billion, while net earnings jumped nearly 118% to $55.3 million from a year ago.
Notably, net operating income (NOI) in Q3 2024, increased 42.3% to $50.1 million from a year ago. In the same quarter, the LTC average occupancy rate rose to 98.4% compared to 97.8% in Q2 2024 and Q3 2023. Extendicare had 52 wholly-owned and LTC 70 LTC homes under management contracts with third parties at the quarter’s end.
The government funding in Ontario is occupancy-based, but if the average occupancy hits 97% for the calendar year, funding is based on 100% occupancy.
Dividend payment history
Extendicare investors enjoy uninterrupted monthly income streams. The stock has never missed a payment since January 2013. A 23,772 investment (2,100 shares) in EXE today will produce $100.24 in monthly passive income. The overall return should be higher if you include the price appreciation. At $11.32 per share, the trailing one-year price return is +71.5%. Your principal remains intact if you collect the dividends only.
Competitive advantage
Expect Extendicare to keep investors whole on the monthly dividend payments. Its competitive advantage is the less capital-intensive, higher-margin business model. The operation should also endure, given the need to replace aging infrastructure and add capacity to the healthcare system.
