Why It Might Not Make Sense To Buy Plato Income Maximiser Limited (ASX:PL8) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Plato Income Maximiser Limited (ASX:PL8) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Plato Income Maximiser's shares on or after the 14th of November, you won't be eligible to receive the dividend, when it is paid on the 29th of November.

The company's upcoming dividend is AU$0.0055 a share, following on from the last 12 months, when the company distributed a total of AU$0.066 per share to shareholders. Calculating the last year's worth of payments shows that Plato Income Maximiser has a trailing yield of 5.3% on the current share price of AU$1.245. 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! As a result, readers should always check whether Plato Income Maximiser has been able to grow its dividends, or if the dividend might be cut.

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 more than half (70%) of its earnings last year, which is a regular payout ratio for most companies.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

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?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Plato Income Maximiser's 5.4% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

We'd also point out that Plato Income Maximiser issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Plato Income Maximiser has delivered an average of 2.9% per year annual increase in its dividend, based on the past seven years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

The Bottom Line

Has Plato Income Maximiser got what it takes to maintain its dividend payments? We're not overly enthused to see Plato Income Maximiser's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

With that being said, if you're still considering Plato Income Maximiser as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that Plato Income Maximiser is showing 3 warning signs in our investment analysis, and 1 of those is significant...

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.