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Readers hoping to buy Plato Income Maximiser Limited (ASX:PL8) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Plato Income Maximiser investors that purchase the stock on or after the 14th of March will not receive the dividend, which will be paid on the 28th of March.
The company's upcoming dividend is AU$0.0055 a share, following on from the last 12 months, when the company distributed a total of AU$0.066 per share to shareholders. Based on the last year's worth of payments, Plato Income Maximiser stock has a trailing yield of around 5.5% on the current share price of AU$1.21. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Plato Income Maximiser can afford its dividend, and if the dividend could grow.
View our latest analysis for Plato Income Maximiser
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 78% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see how much of its profit Plato Income Maximiser paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Plato Income Maximiser earnings per share are up 2.1% per annum over the last five years.
We'd also point out that Plato Income Maximiser issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.