The company decided to get out of the information management business and focus on cybersecurity, which represents more growth potential over the coming years. To that end, Symantec sold Veritas to the Carlyle Group for $7.4 billion. Veritas was Symantec's information management arm.
Symantec then turned around and acquired Blue Coat for $4.6 billion, a move that expanded Symantec's footprint in the enterprise cybersecurity sector. Symantec expects the acquisition to increase its top line revenues by around 62%, along with net cost synergies of $150 million per year. In November 2016, Symantec acquired LifeLock, an identity theft protection business, for $2.3 billion.
While the acquisitions were taking place, Symantec decided to alter its capital allocation. The company announced it would spend $2.3 billion on buybacks. In addition, Symantec announced a one-time special dividend of $4 per share, a dividend yield of 24% based on the company's share price of $16.62 at the time. At the same time, the company halved its quarterly dividend from $0.15 per share to 7.5 cents per share. In other words, Symantec lowered its dividends so it could utilize its capital for future buyback programs. However, the company's goal is to increase future dividends: 5% in 2017 and 10% growth through 2020.
For 2017 the company's yearly dividend should be around $0.32, increasing each year to around $0.42 in 2020. Thus the company's dividend yield should remain at 1.8% per year for the next few years. While not a great dividend, it should increase slowly for the foreseeable future.
Symantec will make its next earning report at the beginning of February 2017. Analysts are expecting earnings per share of $0.28, with revenues a tick over $1 billion, compared to $909 million year over year. Current quarterly growth is expected to be 7.7%, with next quarter growth of 36%, and 7% per year for the next five years. Earnings per share over the next year are predicted to increase 48%.
Symantec's shares are trading at $25. The bullish target is $31, while the average price target is $26.43. In his recent article, Kayode Omotosho provided Symantec with a price target of $28. This appears to be realistic, especially over the next year, when Symantec's enterprise security solutions should experience increased demand as enterprises make the jump to the cloud.
Industry experts predict that expenditures on the cloud will reach $522 billion by 2026, compared to the $75 billion spent in 2015. And between 2016 and 2020, the compounded annual growth rate will be 22%, attaining $236 billion in 2020.
The need for cybersecurity will increase as enterprises seek to protect their data. Symantec would appear to be well-situated for the next five to ten years. The company's acquisition of Blue Coat and LifeLock secured its place in cybersecurity.
As a dividend investment, Symantec appears to be reliable, even though the yield is not as high as might be found elsewhere. Yet if the company continues to grow, the payouts could increase a bit. But if Symantec remains true to its goals, buybacks should occur as revenue grows. All in all, Symantec appears to be a good long-term investment.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.