Plato Income Maximiser (ASX:PL8) Will Pay A Larger Dividend Than Last Year At AU$0.0045

The board of Plato Income Maximiser Limited (ASX:PL8) has announced that the dividend on 30th of July will be increased to AU$0.0045, which will be 13% higher than last year. This makes the dividend yield 3.9%, which is above the industry average.

See our latest analysis for Plato Income Maximiser

Plato Income Maximiser's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 119% of what it was earning and 93% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

Earnings per share could rise by 49.1% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 85%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

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 payments haven't really changed that much since 4 years ago. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth Could Be Constrained

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Plato Income Maximiser has impressed us by growing EPS at 49% per year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Plato Income Maximiser that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

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