Huge Dividend Growth In An Unexpected Place: Seagate Technology PLC (STX), Intel Corporation (INTC)

I’ll admit that sometimes companies surprise me with their dividend increases. I feel like I have a good handle on which companies are reliable dividend payers, and which ones aren’t. Consider this, from the beginning of 2012 until now, Seagate Technology PLC (NASDAQ:STX) has increased their dividend by 52%. Very few companies can claim such a huge increase in such a small amount of time.

A Terabyte Sized Hole In This Theory
I know that some investors are already skeptical because I’m referring to a company that makes hard drives. The popularity of streaming audio and video, flash memory, and cloud storage, might suggest that the traditional hard drive is dead. There is just one big hole in that theory, no one told Seagate or their main competitor Western Digital Corp. (NASDAQ:WDC).

The truth is, there is still a vast need for traditional storage. Seagate and Western Digital pretty much own the traditional hard drive market, and they are also moving into mobile storage and cloud storage as well. The fact that Seagate saw hard drive shipments jump 24%, and Western Digital saw their shipments increase 107% from a year ago, is further proof that the industry is anything but dead. This also argues well for the traditional computing market, which should be good news for both Microsoft Corporation (NASDAQ:MSFT) and Intel Corporation (NASDAQ:INTC).

The Industry Is Growing?
If you look at market research for the hard drive industry, there are two things driving Seagate and their competition forward. First, the proliferation of smartphones and tablets creates a storage need that these devices just can’t handle. For every picture or video shot on a smartphone, there is a need to store these files. When a consumer can buy a 1 TB Seagate external drive for $86 on Amazon.com, Inc. (NASDAQ:AMZN), or buy 1 TB of cloud storage from Amazon for $500 a year, there is no real decision to be made.

The second growth driver is the shortage in the hard drive market caused by the Thailand floods. These floods disrupted the supply chain, and caused a shortage that isn’t expected to be resolved fully until 2014 according to some experts. In addition, hard drive shipments are expected to increase, “at least through 2016”. This increase is expected to be driven by the increased need to store digital content, and from enterprise sales. Microsoft and Intel investors take note, as these companies dominate the enterprise space.

Third, Windows 8 is expected over time to move customers to replace their computers. Windows 8 just works better with a touch screen device, and this wasn’t a standard feature on most desktop or laptop systems in the last several years. Intel’s development of the Ultrabook segment would seem to spell the death of traditional hard drives, but in most cases manufacturers are sticking with ultra light traditional mobile hard drives.