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Acadian Timber Corp. (TSE:ADN) stock is about to trade ex-dividend in 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Acadian Timber investors that purchase the stock on or after the 28th of September will not receive the dividend, which will be paid on the 15th of October.
The company's next dividend payment will be CA$0.29 per share, and in the last 12 months, the company paid a total of CA$1.16 per share. Based on the last year's worth of payments, Acadian Timber stock has a trailing yield of around 6.5% on the current share price of CA$17.85. If you buy this business for its dividend, you should have an idea of whether Acadian Timber's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Acadian Timber
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Acadian Timber paid out 51% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Acadian Timber generated enough free cash flow to afford its dividend. Acadian Timber paid out more free cash flow than it generated - 130%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While Acadian Timber's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Acadian Timber to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Acadian Timber earnings per share are up 4.0% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.