The aging population in Canada is a pressing issue with far-reaching economic implications. With almost 19% of Canadians aged 65 or older in 2023, and this number expected to rise to over 21% by 2030, the country is facing a demographic shift that demands attention. The superage category, comprising those aged 85 and above, is expected to triple by 2046, further emphasizing the urgency of the matter.
This demographic shift has significant consequences for various sectors, including Old Age Security, healthcare, and specialized accommodation. As more individuals qualify for Old Age Security (OAS), the strain on maintaining payments at current levels increases. The lack of a dedicated OAS fund, unlike the Canada Pension Plan, means the program relies on general revenues, creating a potential financial burden.
Healthcare services will also be impacted, as older individuals require more medical attention. This includes increased demand for doctors, nurses, dental care, pharmaceuticals, diagnostic tests, and home care services, all of which will put a significant strain on government budgets.
The need for specialized accommodation for the elderly is another critical aspect. Many seniors prefer to age in place, but various factors, such as mobility issues, loss of mental capacity, physical ailments, and financial constraints, make this challenging. The current solution involves a mix of public and private institutions, ranging from basic care homes to luxurious retirement residences akin to five-star hotels.
Amidst this landscape, one company stands out: Extendicare Inc. (EXE-T). Despite facing class-action lawsuits during the pandemic, the company has demonstrated resilience and strong financial performance, with its stock value more than doubling in the past year.
Based in Markham, Ontario, Extendicare provides care and services for seniors across Canada under various names. The company operates and manages 99 long-term care homes, employing approximately 28,000 staff. Its common shares are traded on the TSX, and we recommend them for investors seeking a combination of modest yield and capital gains potential in a growing sector.
Extendicare's third-quarter results were impressive, with revenue increasing by $81.2 million year-over-year to $440.3 million, primarily driven by the acquisition of nine new homes. Adjusted EBITDA and net operating income also saw significant increases. The company's CEO, Dr. Michael Guerriere, attributed the strong performance to margin improvements across all segments.
Extendicare's growth strategy involves acquisitions, and last year, it completed the purchase of Closing the Gap (CTG) for $75.1 million. CTG brings a team of experienced caregivers in nursing, health, and pediatric services, further strengthening Extendicare's position in the market.
The stock offers a monthly dividend of $0.042 per share, yielding 2.1% at the current price. While the stock has performed strongly, it may be susceptible to profit-taking, although the p/e ratio remains reasonable at 21.88. The monthly payments are eligible for the dividend tax credit if held in a non-registered account.
As the population continues to age, the demand for seniors' care services will only increase, making Extendicare a potential winner in the market. However, it's essential to consider the risks and tax implications before investing.
What are your thoughts on investing in companies that cater to an aging population? Do you think Extendicare's strategy and performance make it a compelling investment opportunity? Share your insights and opinions in the comments below!
