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The board of InPlay Oil Corp. (TSE:IPO) has announced that it will pay a dividend on the 30th of September, with investors receiving CA$0.015 per share. The dividend yield will be 8.6% based on this payment which is still above the industry average.
View our latest analysis for InPlay Oil
InPlay Oil's Projections Indicate Future Payments May Be Unsustainable
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, InPlay Oil's dividend was only 62% of earnings, however it was paying out 101% of free 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.
Looking forward, earnings per share is forecast to fall by 48.3% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 120%, which is definitely a bit high to be sustainable going forward.
InPlay Oil Doesn't Have A Long Payment History
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. The payments haven't really changed that much since 2 years ago. InPlay Oil hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that InPlay Oil has grown earnings per share at 43% per year over the past five years. InPlay Oil is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While InPlay Oil is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, InPlay Oil has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.