Ask Matt: Is Seagate’s huge dividend safe?

Q: Is Seagate’s huge dividend safe?

A: Seagate (STX) is one of the leading makers of computer storage devices that hold massive amounts of data. But what investors care about most is the company’s massive dividend. The question is whether Seagate keep paying it.

The company yields more than 8%, a stunning dividend payment if you consider the Standard & Poor’s 500 is yielding only around 2%. Seagate’s yield was even higher, roughly 10%, prior to the 22% jump in the stock price Tuesday to roughly $29.38 a share.

Investors were relieved Tuesday after the company announced additional restructuring that would reduce costs. Specifically, the company said it plans to cut 6,500 jobs or 14% of its headcount. The company also told investors revenue in the June quarter could hit $2.65 billion, which is about 13% higher than what investors expected a month ago, says S&P Global Market Intelligence.

Investors are hoping these changes can preserve the company’s quarterly dividend, which is 63 cents a share. There’s reason to be concerned. Seagate’s dividend over the past 12 months is more than 200% larger than its repoted profit. That indicates to investors the dividend isn’t all that sustainable unless the company makes changes.

Paste BN markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.