Seagate's Shareholder Return Strategy Signals Business Confidence

Seagate Technology Holdings plc STX is emphasizing shareholder returns in fiscal 2026, supported by improving operating performance and stronger cash flow visibility. STX resumed share repurchases, marking a notable shift in capital allocation.

In the first quarter of fiscal 2026, the company paid $153 million in dividends and repurchased shares worth $29 million. Following a solid September quarter, STX hiked its quarterly dividend 3% to 74 cents per share in October 2025. The company also reiterated its commitment to returning at least 75% of free cash flow to shareholders over time.

Profitability expansion and strong free cash flow performance are supporting an enhanced capital return strategy. In the last reported quarter, non-GAAP gross margin reached a record 40.1%, rising by about 220 basis points (bps) quarter over quarter and roughly 680 bps year over year, driven by stronger adoption of Seagate's high-capacity nearline products and continued pricing initiatives.

Cash flow from operations was $532 million compared with $508 million in the previous quarter. Free cash flow amounted to $427 million, the same as in the last quarter. It anticipates stronger free cash flow generation in the December quarter.

Seagate exited the quarter with $2.4 billion in liquidity (including an undrawn revolving credit facility of $1.3 billion) and reduced net leverage to 1.5x adjusted EBITDA, aided by a 67% year-over-year increase in adjusted EBITDA. The company added that profitability gains should continue to drive leverage lower, while also exploring opportunities to lower debt further.

Seagate's business model changes and strong product pipeline position it well for better profitability and cash flow in fiscal 2026. This positions the company well to balance growth with meaningful capital returns, thereby enhancing shareholder value in fiscal 2026 and beyond.

Let us take a look at shareholder returns for some of Seagate’s competitors.

Western Digital Corporation WDC remains committed to returning value to its shareholders while continuing to invest strategically in technology and growth opportunities. In the last reported quarter, management brought back nearly 6.4 million shares for $553 million. It paid $39 million in dividends.

The company’s free cash flow generation and gross margin expansion reflect strong demand execution and cost management. In the fiscal first quarter, it generated $672 million in cash from operations compared with $34 million in the prior-year quarter. In a strong vote of confidence in the business momentum and financial stability, its board of directors approved a 25% increase in the quarterly cash dividend, raising this from 10 cents to 12.5 cents per share.

NetApp’s NTAP cash, cash equivalents and investments were $3 billion at the end of the last reported quarter. Net cash from operations was $127 million compared with $105 million in the previous-year quarter. Free cash flow was $78 million (free cash flow margin of 4.6%) compared with $60 million in the prior-year quarter (3.6%). A strong balance sheet helps NetApp continue its shareholder-friendly initiatives of dividend payouts.

The company returned $353 million to its shareholders as dividend payouts and share repurchases in the fiscal second quarter of 2026. NetApp returned $250 million to its shareholders through share repurchases and distributed $103 million in dividends. The company returned $1.57 billion to its shareholders as dividend payouts and share repurchases in fiscal 2025. NetApp’s ability to generate solid free cash flow is expected to help it sustain the current dividend payout (0.35) level, at least in the near term.

STX Price Performance, Valuation and Estimates

In the past month, STX’s shares have gained 9.3% against the Zacks Computer Integrated Systems industry’s decline of 2.6%.

In terms of forward price/earnings, STX’s shares are trading at 22.08X, higher than the industry’s 21.66X.

The Zacks Consensus Estimate for STX’s earnings for fiscal 2026 has been revised up 7% to $11.26 over the past 60 days.

Currently, Seagate sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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