Seagate Technology Holdings (NASDAQ:STX) Has Affirmed Its Dividend Of $0.70

Seagate Technology Holdings plc (NASDAQ:STX) will pay a dividend of $0.70 on the 5th of July. The dividend yield will be 3.3% based on this payment which is still above the industry average.

See our latest analysis for Seagate Technology Holdings

Seagate Technology Holdings' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Seagate Technology Holdings is unprofitable despite paying a dividend, and it is paying out 130% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.

The next 12 months could see EPS growing very rapidly. If the dividend continues along recent trends, we believe we could see the payout ratio reaching 88%, which is definitely on the higher side, but still sustainable.

Seagate Technology Holdings Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was $1.52, compared to the most recent full-year payment of $2.80. This implies that the company grew its distributions at a yearly rate of about 6.3% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

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, initial appearances might be deceiving. Over the past five years, it looks as though Seagate Technology Holdings' EPS has declined at around 34% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Seagate Technology Holdings' Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Seagate Technology Holdings' payments, as there could be some issues with sustaining them into the future. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 3 warning signs for Seagate Technology Holdings that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of 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.