The board of Acadian Timber Corp. (TSE:ADN) has announced that it will pay a dividend of CA$0.29 per share on the 15th of July. This makes the dividend yield 6.8%, which will augment investor returns quite nicely.

View our latest analysis for Acadian Timber

Acadian Timber Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last dividend, Acadian Timber is earning enough to cover the payment, but then it makes up 464% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to fall by 30.8%. If the dividend continues along recent trends, we estimate the payout ratio could reach 101%, which could put the dividend in jeopardy if the company's earnings don't improve.

Acadian Timber Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of CA$0.825 in 2014 to the most recent total annual payment of CA$1.16. This works out to be a compound annual growth rate (CAGR) of approximately 3.5% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. Although it's important to note that Acadian Timber's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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.

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. Just as an example, we've come across 5 warning signs for Acadian Timber you should be aware of, and 1 of them is a bit concerning. Is Acadian Timber not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.