When a company has such a high yield it is always wise to check if it can afford it. Atlantic Power's cash available for distribution is a key metric in measuring the sustainability of the dividend. For 3Q 2012, cash available for distribution was $28.3 million. However, total cash dividends declared to shareholders was $34.0 million in 3Q 2012. This leads to a dividend payout ratio of 120%. This is clearly not sustainable. However, the company did state that the payout ratio for the quarter was negatively impacted by the timing of a $26 million payment. This payment did not occur until the first week of October, resulting in a reduction of working capital for the third quarter.

The recent drop in the share price seems overdone and may be a rare opportunity to buy this stock relatively cheap.. However, the high dividend payout ratio makes me wary of this stock. I would wait for the company to give guidance on its FY 2013 dividend payout policy before I would buy in.