Could This Be the Next Tech Company to Slash Its Payouts?

Tech giant Intel (NASDAQ:INTC) announced this month that it was slashing its dividend by a whopping 66%. Balancing growth and dividends doesn't always work out, especially amid soaring inflation.

Another dividend stock that may be in trouble is Seagate Technology (NASDAQ:STX). The company is known for its data storage solutions. It makes hard drives and other storage products that are essential to companies, especially as they are becoming more digitalized and doing work in the cloud.

Seagate, however, has been facing challenges due to the current macroeconomic conditions. For the six-month period ending Dec. 30, 2022, revenue of $3.9 billion was down 37% from the same period last year. And during this stretch, the company reported a net loss of $4 million (versus a profit of more than $1 billion a year ago). Meanwhile, for the company's upcoming third-quarter results, it's projecting around $2 billion in sales, which would only be a modest improvement from the $1.9 billion in sales that Seagate reported in Q2.

The company currently pays a dividend of $2.80 over the course of a full year, or $0.70 every quarter. Seagate isn't anywhere near covering that amount right now as last quarter, its diluted EPS was a negative 0.16. The dividend has cost Seagate $292 million over the past two quarters, and during that time frame, its operating cash flow was a positive $496 million. While that's strong enough to support the payout for now, it's not a huge buffer, especially if things deteriorate further.

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With Seagate paying a high yield of 4.2% (the S&P 500 average is around 1.7%), the company may be inclined to look at potentially reducing its payouts if things don't get better soon.