Western Forest Products (TSE:WEF) Is Due To Pay A Dividend Of CA$0.0125

The board of Western Forest Products Inc. (TSE:WEF) has announced that it will pay a dividend of CA$0.0125 per share on the 16th of December. The dividend yield will be 4.8% based on this payment which is still above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Western Forest Products' stock price has reduced by 35% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

Our analysis indicates that WEF is potentially undervalued!

Western Forest Products' Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Western Forest Products was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to fall by 64.3% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 33%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Western Forest Products' Dividend Has Lacked Consistency

Looking back, Western Forest Products' dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of CA$0.08 in 2013 to the most recent total annual payment of CA$0.05. Doing the maths, this is a decline of about 5.1% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. We are encouraged to see that Western Forest Products has grown earnings per share at 8.7% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Western Forest Products' Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Western Forest Products is earning enough to cover the payments, the cash flows are lacking. We don't think Western Forest Products is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Western Forest Products has 4 warning signs (and 2 which can't be ignored) 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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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.