It Might Not Be A Great Idea To Buy Sensata Technologies Holding plc (NYSE:ST) For Its Next Dividend

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 four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Thus, you can purchase Sensata Technologies Holding's shares before the 13th of November in order to receive the dividend, which the company will pay on the 27th of November.

The company's upcoming dividend is US$0.12 a share, following on from the last 12 months, when the company distributed a total of US$0.48 per share to shareholders. Based on the last year's worth of payments, Sensata Technologies Holding stock has a trailing yield of around 1.4% on the current share price of US$33.48. 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.

View 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 reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 22% of its 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past three years, Sensata Technologies Holding has increased its dividend at approximately 2.9% a year on average.

We update our analysis on Sensata Technologies Holding every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Is Sensata Technologies Holding worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of Sensata Technologies Holding don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 2 warning signs for Sensata Technologies Holding (1 is a bit concerning!) that you ought to be aware of before buying the shares.

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.