The company has $3.9 billion in cash, only $231 million of debt and produced cash flow totaling $1.5 billion in the past 12 months, which is more than twice the company's 12-month reported earnings of $688 million.
Western Digital trades at only seven times cash flow, well below the industry peer average of 11. Analyst forecast Western Digital to earn $5.75 per share this year. At 30% payout, Western Digital would pay a $1.73 annual dividend and yield a rich 4.3%.
3. EMC Corp. (NYSE: EMC)
EMC is the global leader in data-storage and information-security products, holding a 25% share of the data-storage
market.
An evolving IT landscape benefits EMC by fueling continual demand for new storage and security products. In 2011, the company made $20 billion in revenue, an 18% increase from 2010. Earnings increased 24% to $3.4 billion and cash flow grew 25% to $5.7 billion in the same period. Consensus estimates target 15% earnings growth in each of the next five years.
EMC has a high-quality balance sheet, showing $6.3 billion of cash and $3.4 billion of debt. EMC shares have gained less than 2% in the past 12 months, and the company trades for just 14 times cash flow, which is well below the industry peer average of 26.
Market observers forecast earnings to reach $1.72 per share in 2012. If EMC initiated a dividend payment at 30% payout, it would amount to $0.52 and shares would yield 2%, with room to grow payments down the road.
Risks to consider:
There is no guarantee any of these companies will initiate dividend payments anytime soon, if at all. They may choose to use their cash for share repurchases or to make acquisitions. In addition, the cap on the dividend tax rate is set to expire this year, which will likely affect dividend-payment decisions by corporations. A higher tax rate would make dividends less appealing and discourage companies from initiating payments.
Action to take --> All of these stocks have strong earnings and more than enough cash and cash flow to support dividends. These three companies are strong candidates, but my top choice is Western Digital because the company may come out of the gate with the highest yield, followed by Tech Data and EMC.
Lisa Springer
Lisa Springer does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.