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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Sensata Technologies Holding that you should be aware of before investing. Is Sensata Technologies Holding not quite the opportunity you were looking for? Why not check out our selection of top 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.