Acadian Timber (TSE:ADN) Is Due To Pay A Dividend Of CA$0.29

The board of Acadian Timber Corp. (TSE:ADN) has announced that it will pay a dividend on the 15th of April, with investors receiving CA$0.29 per share. This means the annual payment is 6.1% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Acadian Timber

Acadian Timber Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Looking forward, earnings per share is forecast to fall by 2.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 111%, 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 been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from CA$0.82 in 2012 to the most recent annual payment of CA$1.16. This works out to be a compound annual growth rate (CAGR) of approximately 3.5% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Acadian Timber May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings have grown at around 3.1% a year for the past five years, which isn't massive but still better than seeing them shrink. So the company has struggled to grow its EPS yet it's still paying out 104% of its earnings. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

Acadian Timber's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Acadian Timber's payments, as there could be some issues with sustaining them into the future. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Acadian Timber has 3 warning signs (and 2 which are significant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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