Plato Income Maximiser Limited (ASX:PL8) has announced that it will pay a dividend of A$0.0055 per share on the 30th of August. Based on this payment, the dividend yield on the company's stock will be 5.4%, which is an attractive boost to shareholder returns.
Check out our latest analysis for Plato Income Maximiser
Plato Income Maximiser Doesn't Earn Enough To Cover Its Payments
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Plato Income Maximiser was paying out quite a large proportion of both earnings and cash flow, with the dividend being 135% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.
Looking forward, EPS could fall by 4.3% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 101%, which is definitely a bit high to be sustainable going forward.
Plato Income Maximiser's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. 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 means that it has been growing its distributions at 2.9% per annum over that time. 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.
Plato Income Maximiser May Find It Hard To Grow The Dividend
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. It's not great to see that Plato Income Maximiser's earnings per share has fallen at approximately 4.3% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
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. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
The Dividend Could Prove To Be Unreliable
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. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Plato Income Maximiser has 4 warning signs (and 1 which is a bit 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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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.
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About ASX:PL8
Flawless balance sheet slight.
