PRONEXUS Inc. (TSE:7893) Is About To Go Ex-Dividend, And It Pays A 4.0% Yield

PRONEXUS Inc. (TSE:7893) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is two business days 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase PRONEXUS' shares before the 29th of September in order to receive the dividend, which the company will pay on the 7th of December.

The company's next dividend payment will be JP¥22.00 per share. Last year, in total, the company distributed JP¥44.00 to shareholders. Last year's total dividend payments show that PRONEXUS has a trailing yield of 4.0% on the current share price of JP¥1111.00. If you buy this business for its dividend, you should have an idea of whether PRONEXUS's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately PRONEXUS's payout ratio is modest, at just 49% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. PRONEXUS paid out more free cash flow than it generated - 140%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

PRONEXUS does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

PRONEXUS paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were PRONEXUS to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

View our latest analysis for PRONEXUS

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

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see PRONEXUS earnings per share are up 5.9% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, PRONEXUS has lifted its dividend by approximately 9.3% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is PRONEXUS worth buying for its dividend? PRONEXUS delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 140% of its cash flow over the last year, which is a mediocre outcome. In summary, it's hard to get excited about PRONEXUS from a dividend perspective.

So if you want to do more digging on PRONEXUS, you'll find it worthwhile knowing the risks that this stock faces. We've identified 2 warning signs with PRONEXUS (at least 1 which is a bit unpleasant), and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.