Plato Income Maximiser Limited (ASX:PL8) has announced that it will pay a dividend of A$0.0055 per share on the 30th of April. This makes the dividend yield 5.2%, which will augment investor returns quite nicely.

Our free stock report includes 2 warning signs investors should be aware of before investing in Plato Income Maximiser. Read for free now.

Plato Income Maximiser's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Plato Income Maximiser's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 119% 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.

Over the next year, EPS could expand by 1.2% if the company continues along the path it has been on recently. If the dividend continues along recent trends, we estimate the payout ratio could reach 77%, which is on the higher side, but certainly still feasible.

Check out our latest analysis for Plato Income Maximiser

Plato Income Maximiser's Dividend Has Lacked Consistency

Looking back, Plato Income Maximiser's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 8 years was A$0.054 in 2017, and the most recent fiscal year payment was A$0.066. This implies that the company grew its distributions at a yearly rate of about 2.5% 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.

Plato Income Maximiser May Find It Hard To Grow The Dividend

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. Unfortunately, Plato Income Maximiser's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Plato Income Maximiser has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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