Seagate Technology Holdings plc (NASDAQ:STX) will pay a dividend of $0.70 on the 6th of April. This makes the dividend yield 4.1%, which will augment investor returns quite nicely.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Seagate Technology Holdings' stock price has increased by 39% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
See our latest analysis for Seagate Technology Holdings
Seagate Technology Holdings' Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, the company's dividend was higher than its profits, and made up 77% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.
Over the next year, EPS is forecast to expand by 97.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 48%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Seagate Technology Holdings Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from $1.00 total annually to $2.80. This means that it has been growing its distributions at 11% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
There Isn't Much Room To Grow The Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Seagate Technology Holdings has been growing its earnings per share at 6.2% a year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.
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. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Seagate Technology Holdings (of which 2 are significant!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
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