Should You Buy Plato Income Maximiser Limited (ASX:PL8) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Plato Income Maximiser Limited (ASX:PL8) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Plato Income Maximiser's shares before the 18th of October in order to be eligible for the dividend, which will be paid on the 29th of October.

The company's next dividend payment will be AU$0.005 per share. Last year, in total, the company distributed AU$0.054 to shareholders. Based on the last year's worth of payments, Plato Income Maximiser stock has a trailing yield of around 4.6% on the current share price of A$1.295. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Plato Income Maximiser has been able to grow its dividends, or if the dividend might be cut.

See 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. Fortunately Plato Income Maximiser's payout ratio is modest, at just 28% of profit.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see how much of its profit Plato Income Maximiser paid out over the last 12 months.

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historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Plato Income Maximiser has grown its earnings rapidly, up 96% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past four years, Plato Income Maximiser has increased its dividend at approximately 2.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Plato Income Maximiser is keeping back more of its profits to grow the business.

To Sum It Up

Should investors buy Plato Income Maximiser for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Plato Income Maximiser ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 2 warning signs for Plato Income Maximiser (1 shouldn't be ignored!) that you ought to be aware of before buying the shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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