The board of PropNex Limited (SGX:OYY) has announced that it will be increasing its dividend on the 20th of May to S$0.07. This will take the annual payment to 7.0% of the stock price, which is above what most companies in the industry pay.
Check out our latest analysis for PropNex
PropNex's Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, PropNex was paying out 78% of earnings, but a comparatively small 63% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Over the next year, EPS is forecast to fall by 17.1%. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 94%, meaning that most of the company's earnings are being paid out to shareholders.
PropNex Is Still Building Its Track Record
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2019, the dividend has gone from S$0.015 to S$0.14. This means that it has been growing its distributions at 111% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
Dividend Growth Could Be Constrained
The company's investors will be pleased to have been receiving dividend income for some time. PropNex has seen EPS rising for the last five years, at 45% per annum. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why PropNex is not retaining those earnings to reinvest in growth.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think PropNex's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think PropNex is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for PropNex you should be aware of, and 1 of them makes us a bit uncomfortable. 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.
