InPlay Oil's (TSE:IPO) Dividend Will Be CA$0.015

InPlay Oil Corp. (TSE:IPO) has announced that it will pay a dividend of CA$0.015 per share on the 30th of November. Based on this payment, the dividend yield on the company's stock will be 7.2%, which is an attractive boost to shareholder returns.

Check out our latest analysis for InPlay Oil

InPlay Oil's Payment Has Solid Earnings Coverage

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 6.3% of earnings, however it was paying out 296% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

EPS is set to fall by 10.0% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 43%, which we are pretty comfortable with and we think is feasible on an earnings basis.

InPlay Oil Is Still Building Its Track Record

Without a track record of dividend payments, we can't make a judgement on how stable it has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

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. InPlay Oil has impressed us by growing EPS at 45% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On InPlay Oil's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, InPlay Oil has 5 warning signs (and 1 which is significant) we think you should know about. Is InPlay Oil not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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