Acadian Timber Corp’s (TSX: ADN, OTC: ACAZF) fourth-quarter revenue came in 26 percent below last year. Meanwhile, rising costs contracted cash flow margin to 25 percent of revenue from 31 percent a year ago. Full-year net revenue was off 6.8 percent, reflecting lower volume sales and higher per-unit costs.

The company’s production lagged mainly because of an unusually wet summer and fall combined with reduced contractor availability in Maine. These factors dragged full-year 2011 harvest volume 7.6 percent below 2010 levels. Production volume was 26 percent lower in the fourth quarter. This more than offset strong demand for Acadian’s hardwood and softwood pulpwood as well as favorable pricing for hardwood specialty sawlogs.

The overall result was a sharp drop in free cash flow per share–the company’s primary metric for profits–to CAD0.13 from CAD0.32 a year ago. The pushed the fourth-quarter payout ratio up to 161.5 percent. The full-year payout ratio was considerably lower at 112.2 percent but still well above management’s standing target of paying out 95 percent of free cash flow.

The good news is Acadian maintained guidance for a sales and profit rebound in 2012. As a result, it’s holding the dividend at its current level of CAD0.20625 per share per quarter, a level CFO Brian Banfill described as “conservative” during the earnings conference call.

Management’s assurance is in large part grounded in stronger market conditions as well as the fact that the current dividend level was set a year ago, when the environment for timber sector was much softer. The company was able to raise the average price of its products by 9 percent above 2010 levels during the fourth quarter.

Finally, Acadian’s financial position remains extremely strong, with no debt maturities until 2016, a wholly undrawn CAD10 million credit line and CAD4 million of cash in the bank.

Weather is always unpredictable, and more wet weather will always depress harvests. But the company has addressed the issue of a tight labor market to lock up contractor availability, which should result in solid output gains even if conditions are not optimal. One of the measures taken was to increase contractor payments to lock in their services in Maine, which will raise costs going forward. But management appears to have largely offset the impact on margins by better aligning contract pricing with robust market conditions.

The company’s primary markets are lumber–mainly used in construction–biomass for generating energy and global pulp and paper. The good news in early 2012 is the latter market appears stable and healthy, despite coming under some pressure in the fourth quarter of 2011. In addition, US housing starts showed distinct improvement in the fourth quarter, rising 9 percent.

Moreover, management expects a weak market this year and has made its guidance accordingly. As a result, any improvement on that could create a very positive surprise and risk of disappointment is slight.

Acadian shares sold off today following the news, reversing some of the gains of recent weeks. The key to the stock price, however, is ultimately the dividend. And with the operating and financial support of Brookfield Asset Management (TSX: BAM/A, NYSE: BAM)–which runs Acadian and sets payout policy–there are deep pockets to back that up, even if market conditions and weather don’t cooperate. Meanwhile, a rebound in cash flow would likely take the shares past my buy target of USD13.

There’s the possibility that Brookfield will consider a major asset drop-down to Acadian at some point in the future, mirroring the investment company’s consolidation of renewable energy assets into Conservative Holding Brookfield Renewable Energy Partners LP (TSX: BEP-U, OTC: BRPFF) last year. The parent owns and operates 2.5 million acres (USD3.5 billion value) of timberlands in the Pacific Northwest US, Brazil and British Columbia, focusing on quality timberland in wood-consuming countries.

Adding these assets to Acadian’s 2.4 million acres would more than double the company’s scale, easing access to capital and providing new opportunities for growth. Even if that doesn’t happen, however, Acadian Timber remains a solid holding and a buy for more aggressive investors who don’t already own it up to USD13.

Numbers Ahead

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–Mar. 8, 2012 (estimate)
• Artis REIT (TSX: AX-U, OTC: ARESF)–Mar. 14, 2012 (confirmed)
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–Feb. 29, 2012 (confirmed)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–Mar. 2, 2012 (estimate)
• Brookfield Renewable Energy Partners LP (TSX: BEP-U, OTC: BRPUF)–Feb. 13, 2012 (confirmed)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–Feb. 28, 2012 (confirmed)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–Feb. 9, 2012 (confirmed)
• Colabor Inc (TSX: GCL, OTC: COLFF)–Mar. 8, 2012 (estimate)
• Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–Mar. 8, 2012 (estimate)
• Dundee REIT (TSX: D-U, OTC: DRETF)–Feb. 22, 2012 (confirmed)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–Feb. 23, 2012 (estimate)
• IBI Group Inc (TSX: IBG, OTC: IBIBF)–Mar. 21, 2012 (estimate)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–Mar. 23, 2012 (estimate)
• Just Energy Group Inc (TSX: JE, OTC: JUSTF)–Feb. 9, 2012 (confirmed)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–Feb. 16, 2012 (confirmed)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–Mar. 13, 2012 (confirmed)
• Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF)–Mar. 9, 2012 (estimate)
• Provident Energy Ltd (TSX: PVE, NYSE: PVX)–Mar. 9, 2012 (estimate)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–Feb. 14, 2012 (confirmed)
• Shaw Communications (TSX: SJR/B, NYSE: SJR)–Jan. 12, 2012, Flash Alert
• Student Transportation Inc (TSX: STB, OTC: STUXF)–Feb. 14, 2012 (confirmed)
• TransForce Inc (TSX: TFI, OTC: TFIFF)–Feb. 29, 2012 (confirmed)

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–Feb. 7, 2012, Flash Alert
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–Mar. 14, 2012 (estimate)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–Feb. 10, 2012 (estimate)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–Feb. 23, 2012 (confirmed)
• Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF)–Mar. 16, 2012 (estimate)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–Feb. 24, 2012 (estimate)
• Extendicare REIT (TSX: EXE-U, OTC: EXETF)–Feb. 29, 2012 (confirmed)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–Mar. 2, 2012 (estimate)
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–Feb. 14, 2012 (confirmed)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–Mar. 14, 2012 (estimate)
• Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE)–Feb. 23, 2012 (estimate)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–Mar. 9, 2012 (estimate)
• PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–Mar. 7, 2012 (estimate)
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–Feb. 29, 2012 (estimate)