PropNex Limited's (SGX:OYY) investors are due to receive a payment of SGD0.08 per share on 12th of May. This makes the dividend yield 6.9%, which will augment investor returns quite nicely.
Check out our latest analysis for PropNex
PropNex Doesn't Earn Enough To Cover Its Payments
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, PropNex was paying out quite a large proportion of both earnings and cash flow, with the dividend being 101% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
Over the next year, EPS is forecast to expand by 3.8%. If the dividend continues on its recent course, the payout ratio in 12 months could be 117%, which is a bit high and could start applying pressure to the balance sheet.
PropNex's Dividend Has Lacked Consistency
The track record isn't the longest, but we are already seeing a bit of instability in the payments. The dividend has gone from an annual total of SGD0.015 in 2019 to the most recent total annual payment of SGD0.135. This means that it has been growing its distributions at 73% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
PropNex's Dividend Might Lack Growth
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. PropNex has impressed us by growing EPS at 26% per year over the past five years. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.
The Dividend Could Prove To Be Unreliable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Strong earnings growth means PropNex has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think PropNex is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for PropNex that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.
About SGX:OYY
Flawless balance sheet with acceptable track record.
