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 3 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Sensata Technologies Holding's shares before the 9th of August in order to receive the dividend, which the company will pay on the 24th of August.
The upcoming dividend for Sensata Technologies Holding is US$0.11 per share. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Sensata Technologies Holding has been able to grow its dividends, or if the dividend might be cut.
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 is paying out just 6.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 6.3% of its free cash flow in the last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about Sensata Technologies Holding's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Sensata Technologies Holding is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.
This is Sensata Technologies Holding's first year of paying a dividend, so it doesn't have much of a history yet to compare to.
To Sum It Up
Should investors buy Sensata Technologies Holding for the upcoming dividend? Earnings per share have been flat over this time, but we're intrigued to see that Sensata Technologies Holding is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Sensata Technologies Holding is halfway there. Sensata Technologies Holding looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Sensata Technologies Holding looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, Sensata Technologies Holding has 4 warning signs (and 1 which can't be ignored) we think you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.
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