Is It Smart To Buy Sensata Technologies Holding plc (NYSE:ST) Before It Goes Ex-Dividend?
It looks like Sensata Technologies Holding plc (NYSE:ST) is about to go ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Sensata Technologies Holding investors that purchase the stock on or after the 8th of August will not receive the dividend, which will be paid on the 23rd of August.
The company's next dividend payment will be US$0.12 per share. Last year, in total, the company distributed US$0.48 to shareholders. Based on the last year's worth of payments, Sensata Technologies Holding has a trailing yield of 1.2% on the current stock price of $41.73. If you buy this business for its dividend, you should have an idea of whether Sensata Technologies Holding's dividend is reliable and sustainable. 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.
Check out our latest analysis for Sensata Technologies Holding
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sensata Technologies Holding is paying out just 18% 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 19% of its free cash flow in the 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 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. It's not encouraging to see that Sensata Technologies Holding's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all 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.
Given that Sensata Technologies Holding has only been paying a dividend for a year, there's not much of a past history to draw insight from.
Final Takeaway
Is Sensata Technologies Holding an attractive dividend stock, or better left on the shelf? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. 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. There's a lot to like about Sensata Technologies Holding, and we would prioritise taking a closer look at it.
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.
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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.
