The board of Sensata Technologies Holding plc (NYSE:ST) has announced that it will pay a dividend on the 25th of February, 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.

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

If it is predictable over a long period, even low dividend yields can be attractive. Sensata Technologies Holding is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

EPS is forecast to rise very quickly over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 243%, which is unsustainable.

Sensata Technologies Holding Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The annual payment during the last 4 years was $0.44 in 2022, and the most recent fiscal year payment was $0.48. This implies that the company grew its distributions at a yearly rate of about 2.2% over that duration. 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.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Sensata Technologies Holding's EPS has fallen by approximately 26% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

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. Is Sensata Technologies Holding not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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.