Platinum Investment Management's (ASX:PTM) Dividend Will Be Reduced To AU$0.10

Platinum Investment Management Limited (ASX:PTM) has announced it will be reducing its dividend payable on the 18th of March to AU$0.10, which is 17% lower than what investors received last year. The dividend yield of 9.2% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Platinum Investment Management

Platinum Investment Management's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Platinum Investment Management's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 99% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

EPS is set to fall by 22.4% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could reach 93%, which is definitely on the higher side.

Platinum Investment Management Has A Solid Track Record

The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was AU$0.25 in 2012, and the most recent fiscal year payment was AU$0.24. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. In the last five years, Platinum Investment Management's earnings per share has shrunk at approximately 3.8% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payout levels might be a bit high for our liking, but we can't deny that until now, the payments have been pretty consistent. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Platinum Investment Management has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is Platinum Investment Management not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.