Acadian Timber (TSE:ADN) Will Pay A Dividend Of CA$0.29

Acadian Timber Corp. (TSE:ADN) will pay a dividend of CA$0.29 on the 15th of October. This means the annual payment is 6.9% of the current stock price, which is above the average for the industry.

See our latest analysis for Acadian Timber

Acadian Timber Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Earnings per share is forecast to rise by 5.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 123%, which probably can't continue without putting some pressure on the balance sheet.

Acadian Timber Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, 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. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately, Acadian Timber's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. So the company has struggled to grow its EPS yet it's still paying out 124% of its earnings. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Acadian Timber is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Acadian Timber (1 can't be ignored!) that you should be aware of before investing. Is Acadian Timber not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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