Companies operating retirement homes or long-term-care (LTC) facilities suffered business reversals during the global pandemic in 2020. Fortunately, most Canadian operators recovered gradually, and the situation has normalized. Today, Extendicare (TSX:EXE) is among the profitable prospects for income-focused investors. You gain the best of both worlds: cash flow streams and capital gains.
The healthcare stock is an outperforming, cash-gushing dividend stock. At $10.01 per share, the yield is 5.06%. Furthermore, its 44.76% year-to-date gain handily beats the TSX’s +19.52%. The return is more than double the broad market’s performance. Extendicare is also one of the few companies paying monthly dividends.
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Business overview
Markham-based Extendicare operates long-term care facilities. The $847.9 million for-profit LTC provider offers housing, care and related services to seniors. Brands like ParaMed, Extendicare Assist, and SGP Purchasing Partner Network belong to this 50-year-old organization.
Allied services include consulting, contract management, and procurement. Extendicare has 122 LTC homes and renders 10.2 million hours annually for home care services. Under the multi-year Improving Care Plan, management plans to replace older homes and spend $500 million to construct new homes with modern designs. The planned partnerships with hospitals should also improve clinical capabilities.
Its current president and chief executive officer (CEO), Dr. Michael Guerriere, was the chief medical officer and strategy officer at TELUS before joining Extendicare in October 2018. He believes Extendicare is uniquely positioned to capitalize on industry trends and is preparing to expand its market presence and broaden its footprint in Canada to meet the aging population’s demands.
Financial performance
In the nine months ending September 30, 2024 (first three quarters), revenue and net earnings increased 12.6% and 118% year over year to $1.07 billion and $55.3 million. The net cash from operating activities climbed 2,871% to $126.1 million from a year ago. Long-term debt declined 49.6% to $158.7 million from year-end 2023.
The LTC segment contributed the most to revenue (56.1%) and net operating income (51.2%). At the end of the third quarter (Q3) of 2024, the average occupancy rate at LTC homes was 98.4%. Six LTC homes are under construction and construction of two redevelopment projects will commence at year-end.
The volume increase in the home healthcare segment in Q3 2024 was encouraging. “Our strategy continues to deliver robust growth across our operating segments and improved operating results. Sequential growth in home health care volumes was especially notable given the third quarter typically experiences a seasonal pullback in service demand,” Dr. Guerriere said.
Both operating segments have compelling growth opportunities due to a growing demographic. According to management, cash from operating activities, available funds from credit facilities, and future debt financings are sufficient to support ongoing business operations, working capital, maintenance capex and debt repayments. Inflation is an ongoing concern, although the pressure is moderating.
Consistent dividend payer
Extendicare is a reliable passive-income provider owing to its dividend track record and payout consistency. The healthcare stock has paid monthly dividends without fail since January 2013. A $10,010 investment (1,000 shares) will produce $506.51 annual income ($42.21 monthly).
