It looks like Seagate Technology Holdings plc (NASDAQ:STX) is about to go 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Seagate Technology Holdings' shares before the 20th of December in order to receive the dividend, which the company will pay on the 9th of January.

The company's next dividend payment will be US$0.70 per share. Last year, in total, the company distributed US$2.80 to shareholders. Based on the last year's worth of payments, Seagate Technology Holdings stock has a trailing yield of around 3.3% on the current share price of $85.33. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Seagate Technology Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for Seagate Technology Holdings

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Seagate Technology Holdings 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. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out 102% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

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 earnings fall far enough, the company could be forced to cut its dividend. Seagate Technology Holdings 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Seagate Technology Holdings has lifted its dividend by approximately 6.3% a year on average.

Get our latest analysis on Seagate Technology Holdings's balance sheet health here.

Final Takeaway

Is Seagate Technology Holdings an attractive dividend stock, or better left on the shelf? It's hard to get used to Seagate Technology Holdings paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. Bottom line: Seagate Technology Holdings has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Seagate Technology Holdings and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 3 warning signs for Seagate Technology Holdings you should know about.

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.