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

InPlay Oil Corp.'s (TSE:IPO) investors are due to receive a payment of CA$0.015 per share on 31st of January. This makes the dividend yield 9.9%, which will augment investor returns quite nicely.

See our latest analysis for InPlay Oil

InPlay Oil's Future Dividends May Potentially Be At Risk

If the payments aren't sustainable, a high yield for a few years won't matter that much. At the time of the last dividend payment, InPlay Oil was paying out a very large proportion of what it was earning and 194% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to fall by 60.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach over 200%, which could put the dividend under pressure if earnings don't start to improve.

InPlay Oil Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The last annual payment of CA$0.18 was flat on the annual payment from2 years ago. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that InPlay Oil has grown earnings per share at 41% per year over the past five years. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

InPlay Oil's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Strong earnings growth means InPlay Oil has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for InPlay Oil (1 is significant!) that you should be aware of before investing. 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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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.