Plato Income Maximiser (ASX:PL8) Is Paying Out A Dividend Of A$0.0055

Plato Income Maximiser Limited (ASX:PL8) has announced that it will pay a dividend of A$0.0055 per share on the 31st of December. The dividend yield will be 5.3% based on this payment which is still above the industry average.

See our latest analysis for Plato Income Maximiser

Plato Income Maximiser's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last dividend, Plato Income Maximiser is earning enough to cover the payment, but then it makes up 123% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the company can't turn things around, EPS could fall by 5.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 83%, which is definitely on the higher side.

Plato Income Maximiser's Dividend Has Lacked Consistency

It's comforting to see that Plato Income Maximiser has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of A$0.054 in 2017 to the most recent total annual payment of A$0.066. This works out to be a compound annual growth rate (CAGR) of approximately 2.9% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Plato Income Maximiser's earnings per share has shrunk at approximately 5.4% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

An additional note is that the company has been raising capital by issuing stock equal to 18% of shares outstanding in the last 12 months. 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.

The Dividend Could Prove To Be Unreliable

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 don't think Plato Income Maximiser is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Plato Income Maximiser (of which 1 can't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.