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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 6.7% of the current stock price, which is above the average for the industry.
See our latest analysis for Acadian Timber
Acadian Timber's Future Dividends May Potentially Be At Risk
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend made up a very large portion of earnings and also represented 88% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.
Looking forward, earnings per share is forecast to fall by 25.0% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 131%, which could put the dividend under pressure if earnings don't start to improve.
Acadian Timber Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was CA$0.825 in 2015, 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. 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
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings has been rising at 3.3% per annum over the last five years, which admittedly is a bit slow. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.
In Summary
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. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Acadian Timber (1 is a bit unpleasant!) 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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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.