Plato Income Maximiser (ASX:PL8) Has Affirmed Its Dividend Of AU$0.005

Plato Income Maximiser Limited (ASX:PL8) will pay a dividend of AU$0.005 on the 29th of April. This makes the dividend yield 4.5%, which will augment investor returns quite nicely.

See our latest analysis for Plato Income Maximiser

Plato Income Maximiser's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Plato Income Maximiser's dividend was only 45% of earnings, however it was paying out 126% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

If the trend of the last few years continues, EPS will grow by 74.1% over the next 12 months. If the dividend continues on this path, the payout ratio could be 35% by next year, which we think can be pretty sustainable going forward.

Plato Income Maximiser's Dividend Has Lacked Consistency

Looking back, Plato Income Maximiser's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2017, the dividend has gone from AU$0.054 to AU$0.06. This means that it has been growing its distributions at 2.1% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Plato Income Maximiser has impressed us by growing EPS at 74% per year over the past five years. Plato Income Maximiser is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We'd also point out that Plato Income Maximiser has issued stock equal to 29% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Plato Income Maximiser's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Plato Income Maximiser you should be aware of, and 1 of them is potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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