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The board of Plato Income Maximiser Limited (ASX:PL8) has announced that it will pay a dividend of AU$0.005 per share on the 29th of April. This means the annual payment is 4.5% of the current stock price, which is above the average for the industry.
View our latest analysis for Plato Income Maximiser
Plato Income Maximiser's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 126% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, earnings per share could rise by 74.1% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.
Plato Income Maximiser's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The dividend has gone from AU$0.054 in 2017 to the most recent annual payment of AU$0.06. This implies that the company grew its distributions at a yearly rate of about 2.1% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
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. Plato Income Maximiser has seen EPS rising for the last five years, at 74% per annum. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.
We'd also point out that Plato Income Maximiser has issued stock equal to 29% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
Our Thoughts On Plato Income Maximiser's Dividend
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 the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.