Yahoo Finance Don't Buy Sensata Technologies Holding plc (NYSE:ST) For Its Next Dividend Without Doing These Checks
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sensata Technologies Holding plc (NYSE:ST) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Sensata Technologies Holding's shares on or after the 14th of August, you won't be eligible to receive the dividend, when it is paid on the 28th of August.
The company's next dividend payment will be US$0.12 per share, on the back of last year when the company paid a total of US$0.48 to shareholders. Based on the last year's worth of payments, Sensata Technologies Holding has a trailing yield of 1.3% on the current stock price of US$36.04. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Sensata Technologies Holding can afford its dividend, and if the dividend could grow.
View our latest analysis for Sensata Technologies Holding
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. Sensata Technologies Holding lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Sensata Technologies Holding didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Luckily it paid out just 23% of its free cash flow last year.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Sensata Technologies Holding was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, two years ago, Sensata Technologies Holding has lifted its dividend by approximately 4.4% a year on average.
Remember, you can always get a snapshot of Sensata Technologies Holding's financial health, by checking our visualisation of its financial health, here.
The Bottom Line
From a dividend perspective, should investors buy or avoid Sensata Technologies Holding? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Bottom line: Sensata Technologies Holding has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that being said, if you're still considering Sensata Technologies Holding as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 1 warning sign for Sensata Technologies Holding you should be aware of.
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.
