Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Plato Income Maximiser Limited (ASX:PL8) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 16th of March will not receive the dividend, which will be paid on the 31st of March.
Plato Income Maximiser's next dividend payment will be AU$0.004 per share, on the back of last year when the company paid a total of AU$0.048 to shareholders. Last year's total dividend payments show that Plato Income Maximiser has a trailing yield of 4.0% on the current share price of A$1.195. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Plato Income Maximiser can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Plato Income Maximiser
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Plato Income Maximiser paid out 119% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance.
When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.
Click here to see how much of its profit Plato Income Maximiser paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Plato Income Maximiser has grown its earnings rapidly, up 49% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Plato Income Maximiser's dividend payments per share have declined at 3.9% per year on average over the past three years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
The Bottom Line
From a dividend perspective, should investors buy or avoid Plato Income Maximiser? Plato Income Maximiser has been generating credible earnings per share growth, although its dividend payments were not adequately covered by earnings. We're unconvinced on the company's merits, and think there might be better opportunities out there.
If you're not too concerned about Plato Income Maximiser's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Our analysis shows 1 warning sign for Plato Income Maximiser and you should be aware of it before buying any shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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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. 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.
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About ASX:PL8
Flawless balance sheet and fair value.
