We are an aging population, and consequently, senior housing and care services are a lucrative industry in Canada. Investors seeking a reliable passive income stream for a secure retirement could purchase shares in a senior care provider, receive steady monthly dividends, and enjoy peace of mind as their seemingly safe passive income covers monthly bills.

Senior housing provider Extendicare (TSX:EXE) is a top dividend stock whose 5.8% yielding payout qualifies as a safe dividend option due to its expanding business footprint, increased government funding, strong balance sheet, well-covered dividend payout, and a continually growing customer base from an aging population.

Extendicare: A growing dividend-paying player in senior care

Extendicare provides care and services for a growing population of seniors across Canada. The $700 million company operates a network of 123 long-term care homes and offers home healthcare services. Moreover, its business footprint continues to expand through joint ventures, management contracts, and profitable redevelopment projects.

Demand for Extendicare's services is increasing with Canada's aging population. Furthermore, favourable government policies that increased public funding for elderly care post the COVID-19 pandemic significantly boosted the company's revenue. Operating profit margins have expanded recently, and as a result, the business is generating highly recurring cash flow to fund its stable monthly dividend.

Extendicare has demonstrated improved operating performance, with significantly expanded operating margins in the most recent quarter. In addition, increased funding from provincial governments, joint ventures, and rate hikes contributed to a 13.3% growth in second-quarter revenue. Additionally, average occupancy rates in its long-term care facilities have improved to 97.8% from 93.5% two years ago.

Most importantly, profitability has improved significantly. Extendicare has achieved substantial increases in net operating income (NOI) margins across all three business segments.

Notably, the company's long-term care (LTC) segment, which commands the majority of its revenue and earnings, expanded its NOI margin from 7.6% a year ago to 13.2% last quarter. The company's total NOI margin increased to 15.2% from 9.3% a year ago, and the adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) margin increased to double-digit levels for the first time in eight quarters.

A safe TSX dividend stock for monthly passive income

Extendicare pays a $0.04 per share dividend monthly. The payout yields approximately 5.8% annually. Investors in EXE stock have received a consistent monthly dividend payout for more than 10 years now, since June 2013.

Consequently, due to significant improvements in the company's operating environment, Extendicare's monthly dividend appears much safer today. The dividend comprised 48% of the company's Adjusted Funds From Operations (AFFO) for the second quarter, on a fully diluted basis. AFFO represents the company's distributable cash flow from operations, and payout rates below 100% can be sustainable for decades. Extendicare's AFFO per share more than doubled year-over-year to $0.27 a share during the past quarter, up from $0.11 per share during a comparable quarter in 2023.

However, Extendicare's dividend hasn't always been secure. The company once reduced its payout by 43% in May 2013 as its U.S. operations (which it later sold) faced political and funding uncertainties. The business's cash flow has been more visible since exiting the United States senior care market. Nevertheless, its Canadian operations, supported by favourable public healthcare policies, could sustain strong and sustainable cash flow generation long term.

Dividend investors may enjoy EXE's monthly dividend payments for decades more and sleep well at night as the senior care provider's dividend takes care of some of their monthly bills during a lengthy retirement.

Investor takeaway

While Extendicare presents an increasingly compelling dividend investment opportunity, it's essential to consider potential risks. Regulatory changes, economic downturns, and alterations in healthcare policies could impact the company's future performance.

However, Extendicare's strong financial performance, favourable demographic trends, and expanding operations make it an attractive TSX dividend stock for investors seeking safe passive income streams. The company's stable monthly dividend makes it a worthwhile consideration for retirement income portfolios.