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How Has Western Digital Improved Shareholder Value?

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Aug. 18 2020, Updated 10:22 a.m. ET

Share buybacks

In fiscal Q4 2018, Western Digital (WDC) returned $586 million to shareholders in the form of buybacks and dividends. While WDC bought back shares worth $436 million, it paid $150 million in dividends to shareholders.

Western Digital has a dividend yield of 3.5%, amounting to an annualized payout of $2.00 per share. WDC has increased its dividend payouts at a CAGR (compound annual growth rate) of 12.6% over the last three years.

In comparison, the dividend yield for peers Seagate (STX), NetApp (NTAP), and IBM (IBM) stand at 5.2%, 1.9%, and 4.2%, respectively.

During WDC’s fiscal Q4 earnings call, the management confirmed that its board of directors had authorized a new $5 billion share repurchase program and has targeted repurchases of $1.5 billion worth of common stock over the next 12 months.

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Managing costs

In this series, we have seen that WDC is looking to reduce costs and offset declining revenue. It is looking to shut down its factory in Kuala Lumpur and is in talks with JV (joint venture) partner Toshiba to reduce capital expenditure.

Its variable compensation structure enables WDC in times of reducing profit margins and a downward cycle. WDC’s operating leverage is estimated at 2.6x in fiscal 2020, which means that the operating margin is projected to increase 2.6 times its revenue growth in 2020.

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