Saturday, January 24, 2009

Dividend Stock Review: Seagate Technology (STX)

I purchased my first technology stock since 1999. I have followed Seagate Technology for a few years and finally purchased some shares late this week. I had been looking to purchase a technology stock that paid dividends as well. The company cut it's dividend earlier this week but the stock still yields over 3%.

Seagate Technology is one of the world's largest manufacturers of hard disc drives. This technology is used to store information in computers and other electronic devices, and almost all of the company's revenues are derived from the design, manufacture, and marketing of these hard disc drives. A limited amount of revenue (less than 1%) is generated by its wholly owned subsidiary, EVault Inc., which provides data storage services for small to medium-size businesses. The company's products are marketed under the Seagate Technology and Maxtor Corporation brand names.

The company has used acquisitions to strengthen its core business, while also expanding into newer, but potentially lucrative end-markets. In January 2007, the company acquired EVault Inc. for $187 million and expanded into the online data storage market. In May 2006, Seagate acquired a key competitor, Maxtor Corporation, for $1.9 billion.

I believe weak demand, along with some price deflation, will hurt STX margins and net income during the rest of 2009 which should then look to rebound some in 2010. I expect restructuring will help lower the company's high cost structure. I explect STX to continue free cash flow generation later this year and to maintain its leading market share position.

Disclosure: The Div Guy owns shares of STX at the time of this post.

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