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The board of Sensata Technologies Holding plc (NYSE:ST) has announced that it will pay a dividend on the 27th of November, with investors receiving $0.12 per share. Including this payment, the dividend yield on the stock will be 1.4%, which is a modest boost for shareholders' returns.
See our latest analysis for Sensata Technologies Holding
Sensata Technologies Holding's Projections Indicate Future Payments May Be Unsustainable
Estimates Indicate Sensata Technologies Holding's Could Struggle to Maintain Dividend Payments In The Future
Sensata Technologies Holding's Future Dividends May Potentially Be At Risk
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. While Sensata Technologies Holding is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.
Over the next year, EPS is forecast to expand by 167.4%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.
Sensata Technologies Holding Doesn't Have A Long Payment History
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2021, the annual payment back then was $0.44, compared to the most recent full-year payment of $0.48. This means that it has been growing its distributions at 2.9% per annum over that time. Sensata Technologies Holding hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.
Dividend Growth Potential Is Shaky
The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Over the past five years, it looks as though Sensata Technologies Holding's EPS has declined at around 16% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Sensata Technologies Holding is a great stock to add to your portfolio if income is your focus.