Sensata Technologies Holding plc (NYSE:ST) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Readers hoping to buy Sensata Technologies Holding plc (NYSE:ST) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Sensata Technologies Holding's shares before the 8th of November to receive the dividend, which will be paid on the 23rd of November.
The company's next dividend payment will be US$0.11 per share, on the back of last year when the company paid a total of US$0.44 to shareholders. Calculating the last year's worth of payments shows that Sensata Technologies Holding has a trailing yield of 1.1% on the current share price of $39.13. If you buy this business for its dividend, you should have an idea of whether Sensata Technologies Holding's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See 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 paid out just 11% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Luckily it paid out just 14% of its free cash flow last year.
It's positive to see that Sensata Technologies Holding'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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Sensata Technologies Holding, with earnings per share up 5.6% on average over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.
Unfortunately Sensata Technologies Holding has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
Final Takeaway
Should investors buy Sensata Technologies Holding for the upcoming dividend? Earnings per share have been growing moderately, and Sensata Technologies Holding is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Sensata Technologies Holding is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.
On that note, you'll want to research what risks Sensata Technologies Holding is facing. For example - Sensata Technologies Holding has 1 warning sign we think you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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