It Might Not Be A Great Idea To Buy Acadian Timber Corp. (TSE:ADN) For Its Next Dividend (2024)

It looks like Acadian Timber Corp. (TSE:ADN) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Acadian Timber investors that purchase the stock on or after the 28th of June will not receive the dividend, which will be paid on the 15th of July.

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. Looking at the last 12 months of distributions, Acadian Timber has a trailing yield of approximately 6.9% on its current stock price of CA$16.83. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Acadian Timber has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Acadian Timber

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Acadian Timber paid out more than half (67%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out an unsustainably high 342% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Acadian Timber is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Acadian Timber paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the 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?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Acadian Timber's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Acadian Timber has delivered 3.5% dividend growth per year on average over the past 10 years.

The Bottom Line

Is Acadian Timber worth buying for its dividend? Acadian Timber is paying out a reasonable percentage of its income yet an uncomfortably high 342% of its cash flow as dividends. What's more, earnings have barely grown. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Acadian Timber despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To that end, you should learn about the 5 warning signs we've spotted with Acadian Timber (including 1 which is significant).

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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