Yahoo Finance Why It Might Not Make Sense To Buy Seagate Technology Holdings plc (NASDAQ:STX) For Its Upcoming Dividend
Readers hoping to buy Seagate Technology Holdings plc (NASDAQ:STX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Seagate Technology Holdings investors that purchase the stock on or after the 20th of June will not receive the dividend, which will be paid on the 5th of July.
The company's upcoming dividend is US$0.70 a share, following on from the last 12 months, when the company distributed a total of US$2.80 per share to shareholders. Calculating the last year's worth of payments shows that Seagate Technology Holdings has a trailing yield of 2.7% on the current share price of US$103.86. If you buy this business for its dividend, you should have an idea of whether Seagate Technology Holdings's dividend is reliable and sustainable. 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
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. 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. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Seagate Technology Holdings didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the past year it paid out 129% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. 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. Since the start of our data, 10 years ago, Seagate Technology Holdings has lifted its dividend by approximately 5.0% a year on average.
We update our analysis on Seagate Technology Holdings every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Should investors buy Seagate Technology Holdings for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, 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.
So if you're still interested in Seagate Technology Holdings despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Seagate Technology Holdings has 3 warning signs we think you should be aware of.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
