Investors who want to cash in on Inter Pipeline Ltd.'s (TSE:IPL) upcoming dividend of CA$0.14 per share have only 2 days left to buy the shares before its ex-dividend date, 22 April 2019, in time for dividends payable on the 15 May 2019. Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let's take a look at Inter Pipeline's most recent financial data to examine its dividend characteristics in more detail.
5 questions I ask before picking a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Inter Pipeline fit our criteria?
Inter Pipeline has a trailing twelve-month payout ratio of 110%, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a higher payout ratio of 157% which, assuming the share price stays the same, leads to a dividend yield of 7.9%. However, EPS is forecasted to fall to CA$1.29 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you're eyeing out is reliable in its payments. In the case of IPL it has increased its DPS from CA$0.84 to CA$1.71 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Relative to peers, Inter Pipeline produces a yield of 7.7%, which is high for Oil and Gas stocks.
Taking into account the dividend metrics, Inter Pipeline ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three important aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for IPL’s future growth? Take a look at our free research report of analyst consensus for IPL’s outlook.
- Historical Performance: What has IPL's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.