It looks like PropNex Limited (SGX:OYY) is about to go ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 30th of August will not receive the dividend, which will be paid on the 16th of September.

PropNex's upcoming dividend is S$0.013 a share, following on from the last 12 months, when the company distributed a total of S$0.025 per share to shareholders. Looking at the last 12 months of distributions, PropNex has a trailing yield of approximately 4.9% on its current stock price of SGD0.515. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for PropNex

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. PropNex paid out 69% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 77% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that PropNex's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. Fortunately for readers, PropNex's earnings per share have been growing at 13% a year for the past five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

PropNex also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.