Plato Income Maximiser (ASX:PL8) dividend will be AU$0.0055

Plato Income Maximizer Limited (ASX:PL8) announced that it will pay a dividend of AUD 0.0055 per share on May 31. Based on this payout, the dividend yield on the company’s stock will be 4.5%, which is an attractive increase in returns for shareholders.

See our latest analysis for Plato Income Maximiser

Plato Income Maximiser income easily covers distributions

While it’s good to have a high dividend yield, we also have to ask ourselves if the payout is sustainable. Prior to this announcement, Plato Income Maximiser’s dividend was only 45% of earnings, but it paid out 126% of free cash flow. The company might be more focused on returning cash to shareholders, but paying out such a portion of its cash flow could expose the dividend to a reduction in the future.

Going forward, earnings per share could increase by 74.1% over the next year if the trend of recent years continues. Assuming the dividend continues on recent trends, we think the payout ratio could be 36% by next year, which is in a fairly sustainable range.

ASX: PL8 Historic dividend May 5, 2022

Plato Income Maximiser’s dividend lacked consistency

It’s heartening to see that Plato Income Maximiser has been paying a dividend for a number of years now, but it’s been cut at least once during that time. If the company cuts once, that’s certainly no argument against the possibility of it cutting in the future. Since 2017, the dividend has increased from AU$0.054 to AU$0.06. This means that it increased its distributions by 2.1% per year during this period. We are happy to see that the dividend has increased, but with a limited rate of growth and fluctuations in payouts, total shareholder return may be limited.

The dividend should increase

Earnings per share growth could be a mitigating factor given past dividend fluctuations. Plato Income Maximiser has seen EPS grow over the past five years, at 74% annually. The company has no problem growing, despite returning much of the capital to shareholders, which is a very nice combination for a dividend-paying stock.

The company has also raised capital by issuing shares equivalent to 29% of outstanding shares over the past 12 months. Trying to increase the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus – perpetually pushing a rock upwards. Companies that constantly issue new shares are often suboptimal from a dividend perspective.

In summary

Overall, we don’t think this company is generating a great dividend, even though the dividend hasn’t been cut this year. Although Plato Income Maximiser earns enough to cover payments, cash flow is lacking. We would probably look elsewhere for an income investment.

It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. However, there are other things for investors to consider when analyzing stock performance. For example, we encountered 3 Warning Signs for Plato Income Maximiser you should be aware, and one of them doesn’t sit well with us. If you are a dividend investor, you can also consult our curated list of high yielding dividend stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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