In spite of widespread pain brought on by the coronavirus pandemic, Seagate Technology (NASDAQ:STX) is doing just fine. The manufacturer of hard disk drives (HDDs) is finding plenty of new outlets for its wares, especially from data center construction and an uptick in consumer electronics (think laptops and video game console products). Even in a recession, money still moves, and technology is proving resilient -- especially this hardware maker's cost-efficient digital memory.

But even better than the return to year-over-year growth has been an even higher increase in profitability. Seagate remained in good shape during its last cyclical slump, but higher profit means its current dividend yield of 5.3% is on solid footing.

Cloud-computing graphic with lines connecting to icons indicating charts and graphs

Image source: Getty Images.

New digital memory products lead the way higher

Sales continue to rally after a slump in 2019 due to less data center construction and slower consumer spending on devices; a trough was registered late last year. Seagate said that the lockdown to slow the spread of COVID-19, rather than slowing the company's recovery, is creating new demand for mass storage to support cloud computing and software services. As I discussed a couple weeks ago, HDDs are meeting that demand, helping Seagate's customers balance the surge in internet traffic and computing with requirements for frugality during the current recession.

Specifically, revenue in the third quarter of fiscal 2020 (which ended April 3, 2020) was $2.72 billion -- bucking post-holiday-shopping seasonal trends, and rising 1% over the previous quarter and 18% from a year ago. Expenses were held in check, leading to an increase in adjusted earnings per share of 49% from a year ago, to $1.38. The solid quarter has erased year-over-year declines Seagate was sporting through the first half of its fiscal year.

Metric

Nine Months Ended April 3, 2020

Nine Months Ended March 29, 2019

Change

Revenue

$7.99 billion

$8.02 billion

0%

Adjusted gross profit margin

27.8%

29.5%

(1.7 pp)

Adjusted operating profit margin

14.7%

16.5%

(8.8 pp)

Adjusted earnings per share

$3.76

$4.20

(10%)

Free cash flow

$855 million

$862 million

(1%)

Pp = percentage point. Data source: Seagate Technology.

Management also said its supply chain is fully recovered, which is good news because demand remains high as the lockdown continues. At the midpoint of guidance, revenue is expected to be $2.6 billion and adjusted earnings per share to be $1.28 during the final quarter of the fiscal year. Those would be year-over-year increases of 10% and 49%, respectively.

A strong balance sheet and well-funded dividend payment

At the end of Q3, Seagate had $1.61 billion in cash and equivalents, and $4.09 billion in debt. It isn't a squeaky-clean balance sheet, but it's still pretty good considering that the company remained profitable throughout the most recent sales slump. Free cash flow (revenue less cash operating and capital expenses) profit margin sits at nearly 11% during the current 2020 fiscal year.

And over the last nine months, total dividends paid to shareholders equaled $505 million. The $855 million in free cash generation over that same time period handily covered the payout, and still gives Seagate room to spend on research and development. The HDD business isn't a high-growth one, but with a dividend yield of 5.3%, there is plenty to like here for investors looking for income.