Plato Income Maximiser (ASX:PL8) Has Announced A Dividend Of AU$0.005

The board of Plato Income Maximiser Limited (ASX:PL8) has announced that it will pay a dividend on the 31st of March, with investors receiving AU$0.005 per share. The dividend yield will be 4.7% based on this payment which is still above the industry average.

View our latest analysis for Plato Income Maximiser

Plato Income Maximiser's Earnings Easily Cover the Distributions

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 41% of earnings, however it was paying out 126% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS could expand by 74.1% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 33% by next year, which is in a pretty sustainable range.

Plato Income Maximiser's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The first annual payment during the last 4 years was AU$0.054 in 2018, and the most recent fiscal year payment was AU$0.06. This means that it has been growing its distributions at 2.7% 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

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Plato Income Maximiser has grown earnings per share 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. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Plato Income Maximiser has 3 warning signs (and 1 which is concerning) we think you should know about. Is Plato Income Maximiser not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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