Acadian Timber (TSE:ADN) Has Announced A Dividend Of CA$0.29

Acadian Timber Corp. (TSE:ADN) will pay a dividend of CA$0.29 on the 15th of April. Based on this payment, the dividend yield on the company's stock will be 6.7%, which is an attractive boost to shareholder returns.

See our latest analysis for Acadian Timber

Estimates Indicate Acadian Timber's Could Struggle to Maintain Dividend Payments In The Future

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Acadian Timber was paying out 94% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

EPS is set to fall by 25.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 131%, which could put the dividend in jeopardy if the company's earnings don't improve.

Acadian Timber Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the annual payment back then was CA$0.825, compared to the most recent full-year payment of CA$1.16. This implies that the company grew its distributions at a yearly rate of about 3.5% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings have grown at around 3.3% a year for the past five years, which isn't massive but still better than seeing them shrink. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Our Thoughts On Acadian Timber's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Acadian Timber has 3 warning signs (and 1 which is significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.