Skip to main content

Caring for seniors is not an exciting business, but it is well-positioned demographically. As the population ages, more people need assisted support, either in retirement residences or in their own homes.

One of the Canadian leaders in this field is Extendicare Inc., which has been providing these services for more than 50 years. I recommend it for investors who are looking for above-average cash flow and are not overly concerned about capital gains. Here are the details.

Extendicare Inc.

Story continues below advertisement

Type: Common stock

Current price: $8.30

Annual payout: 48 cents

Yield: 5.76 per cent

Risk: Medium

The business: Extendicare is a leading provider of care and services for seniors throughout Canada. The company operates a network of 120 senior care and living centres (the company owns 67 of the properties and manages the rest), as well as providing home health care operations through its ParaMed division. It employs 23,700 people.

The security: I recommend the common stock of this company, which trades on the Toronto Stock Exchange under the ticker symbol EXE. It is also available through the U.S. over-the-counter market, ticker EXETF.

Story continues below advertisement

Why I like it: The company can rely on steady income to fund its dividend, and the yield is a very attractive 5.76 per cent. There is not much upside potential to the stock in the short term, but for those interested in cash flow, that should not be a serious problem.

Financial highlights: Second-quarter revenue was $279.5-million, up 2.1 per cent from the same period in 2017. For the first half of the fiscal year, revenue was $550.9-million, a 1.5-per-cent increase.

Net operating income from Canadian operations was up 11.3 per cent, to $36.3-million in the quarter, compared with 11.9 per cent in the same period of 2017.

Adjusted funds from operations (AFFO) was $17.1-million (19.4 cents per basic share) in the quarter, up $2.7-million from last year. For the first half, AFFO was $31.8-million (36 cents), up $4.7-million. Dividends declared were $21.1-million, representing approximately 67 per cent of AFFO in the first half. This indicates there is ample coverage for the dividend.

Risks: The stock can be volatile at times. Over the past five years, it has ranged from a high of more than $10 to a low of close to $6. It is currently in the middle of that range. As with most high-yielding dividend stocks, it is sensitive to interest-rate risk. Obtaining qualified staff, especially personal support workers, is a continuing problem.

There is also some political risk. Regulation of nursing homes is a provincial responsibility, and governments provide significant funding. A cutback in a provincial budget could negatively affect Extendicare’s revenue.

Story continues below advertisement

Distribution policy: The shares pay a monthly dividend of 4 cents each (48 cents a year).

Tax implications: Payments are eligible for the dividend tax credit if the shares are held in a non-registered account.

Summing up: Good income, limited growth potential. That’s Extendicare in a nutshell. Ask your financial adviser whether it is suitable for your account.

Full disclosure: I own a small position in the stock.

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter