Ĭopyright © 1995 - 2014 The Motley Fool, LLC. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool owns shares of EMC and VMware. The article EMC Corporation or Seagate Technology: Which Is a Shareholder's Best Friend? originally appeared on .īrian Nichols has no position in any stocks mentioned. But you'll probably just call it "how I made my millions." Don't be too late to the party- click here for 1 stock to own when the web goes dark. The Economist is calling it "transformative". Experts are calling it the single largest business opportunity in the history of capitalism. It could make early investors wildly rich. One bleeding-edge technology is about to put the World-Wide-Web to bed. $19 trillion industry could destroy the internet All things considered, Seagate has proved itself to be a shareholder's best friend, while EMC has not. To top it off, Seagate stock has a 3.4% annual dividend yield, more than twice EMC's 1.5% yield. Seagate's management has clearly implemented a shareholder-friendly strategy, which is reassuring for the future. Seagate Technology's stock has significantly outperformed EMC's over the past decade, and its buybacks have been far more effective. That hardly compares with the performance of Seagate Technology. Since 2012, EMC's stock price has increased 37.8%, just 1% better than its market capitalization. But since then it's been rather difficult to find any proof that EMC's buybacks are helping the appreciation of its stock. In 2007 EMC spun off part of its VMware asset, using some of the proceeds to buy back stock. Unlike Seagate, which has seen its greatest disconnect in stock and market capitalization in recent years, EMC's separation began in 2007. Meanwhile, EMC's stock has outperformed its market capitalization gains by just 36% over the past decade. Had Seagate not reduced shares in this period, Seagate's stock and market cap likely would have risen by the same amount. In other words, Seagate's buyback program has essentially given investors large gains in stock price since 2012. Since January 2012, Seagate's stock has outperformed its market capitalization by over 65%, which is quite impressive given the market capitalization increase of 144%. That's when the company began to buy back stock aggressively: However, what's really telling is that Seagate's stock price to market capitalization disconnect didn't start until 2012. This can be seen as a direct effect of reducing its shares outstanding, thereby pushing the stock to trade higher in support of the underlying business. In looking at the past decade, Seagate's stock price has outperformed its market capitalization gains by more than 60%. Let's see how effective both companies have been at reducing their share count and its effect on the stock. Instead, a company's ability to determine when its stock is undervalued and is presenting a good buying opportunity is what makes buybacks effective for shareholders.įor example, if Seagate were to buy back stock at 52-week highs, its buybacks wouldn't be as effective as if EMC buys at 52-week lows. However, when a company buys back stock, the amount itself may not be most important to shareholders. Therefore, EMC actually spends less on dividends and buybacks than Seagate relative to its market capitalization. Thus, with $24 billion in trailing-12-month sales, EMC is a much larger storage company than Seagate.ĮMC's market capitalization is nearly three times as large as Seagate's. The company has a large presence in data centers, and owns 80% of server virtualization company VMware. EMC's business is much broader, controlling more than 22% of the internal and external disk storage systems market, which is hardware used in all types of storage.
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