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 April. 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

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Acadian Timber's dividend was only 67% of earnings, however it was paying out 204% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to fall by 61.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 185%, which could put the dividend under pressure if earnings don't start to improve.

Acadian Timber Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was CA$0.825 in 2014, and the most recent fiscal year payment was 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

The company's investors will be pleased to have been receiving dividend income for some time. 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. Growth of 1.7% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On Acadian Timber's Dividend

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. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Acadian Timber (of which 1 is a bit concerning!) you should know about. 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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