Plato Income Maximiser Limited's (ASX:PL8) investors are due to receive a payment of AU$0.005 per share on 31st of March. This makes the dividend yield 4.7%, which will augment investor returns quite nicely.

View our latest analysis for Plato Income Maximiser

Plato Income Maximiser'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, Plato Income Maximiser's dividend was only 41% of earnings, however it was paying out 126% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS could expand by 74.1% if recent trends continue. If the dividend continues on this path, the payout ratio could be 33% by next year, which we think can be pretty sustainable going forward. historic-dividend

Plato Income Maximiser's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2018, the first annual payment was AU$0.054, compared to the most recent full-year payment of AU$0.06. This implies that the company grew its distributions at a yearly rate of about 2.7% over that duration. 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Plato Income Maximiser has grown earnings per share at 74% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Plato Income Maximiser could prove to be a strong dividend payer.



The company has also been raising capital by issuing stock equal to 29% 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.

In Summary

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. While Plato Income Maximiser is earning enough to cover the payments, the cash flows are lacking. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Plato Income Maximiser has 3 warning signs (and 1 which is significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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