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 7.1% of the stock price, which is above what most companies in the industry pay.
View our latest analysis for PropNex
PropNex's Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, PropNex's dividend made up quite a large proportion of earnings but only 63% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Looking forward, earnings per share is forecast to fall by 14.0% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 91% in the next 12 months, which is on the higher end of the range we would say is sustainable.
PropNex Doesn't Have A Long Payment History
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. Since 2019, the first annual payment was S$0.015, compared to the most recent full-year payment of S$0.14. This implies that the company grew its distributions at a yearly rate of about 111% over that duration. 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.
PropNex's Dividend Might Lack Growth
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see PropNex has been growing its earnings per share at 45% a year over the past five years. 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.
Our Thoughts On PropNex's Dividend
Overall, we always like to see the dividend being raised, but we don't think PropNex will make a great income stock. 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 would probably look elsewhere for an income investment.
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. To that end, PropNex has 2 warning signs (and 1 which is significant) we think you should know about. Is PropNex not quite the opportunity you were looking for? Why not check out our selection of top 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.
