Last update on 2024-06-27

NetApp (NTAP) - Dividend Analysis (Final Score: 6/8)

Assess the stability and performance of NetApp's dividend policy. Gain insights through an 8-criteria scoring system. Final Dividend Score: 6/8.

Short Analysis - Dividend Score: 6

We're running NetApp (NTAP) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

NetApp (NTAP) was assessed using an 8-criteria scoring system to check the performance and stability of its dividend policy, scoring 6 out of 8. NTAP has a 2.27% dividend yield, higher than the industry average but volatile. The dividend growth rate over 20 years isn't consistent, failing to meet the 5% annual growth target. Its average payout ratio is 43.08%, suggesting sound financial discipline despite some spikes. NTAP has shown a stable dividend payment since 2013, growing steadily from $0.30 to $2.00 per share. However, it hasn't met the 25-year dividend payment criterion, and no data was provided about dividend coverage by earnings and cash flow, along with stock repurchases' reliability.

Insights for Value Investors Seeking Stable Income

NetApp (NTAP) has shown strength in maintaining stable and steadily increasing dividends since 2013, which is good for long-term income investors. However, its volatile dividend yield and inconsistent growth rate over the past 20 years raise concerns. Given its sound payout ratio and steady dividend increase, it might be worth considering for investors not solely focused on long-term growth. Potential investors should further investigate coverage by earnings and cash flow, as well as stock repurchase plans before making a decision.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield indicates how much a company pays out in dividends each year relative to its stock price. It is important for income-focused investors who prioritize periodic returns.

As of 2023, NetApp (NTAP) has a dividend yield of 2.2686%, which is higher than the industry average of 8.48%. This high yield can be misleading due to significant fluctuations. For instance, NTAP's yield spiked to 3.33% in 2022 but fell to 2.2686% in 2023, indicating instability. This volatility can be risky for dividend-focused investors, especially when compared to the more stable industry average. Moreover, NTAP initiated dividends only in 2013 and gradually increased them to $2 per share in recent years. Despite this, the high volatility and lower yield as compared to the industry may deter risk-averse investors.

Average annual Growth Rate higher than 5% in the last 20 years?

The dividend growth rate represents the annualized percentage rate of growth of a company's dividend payments over a specific period. A consistent growth rate higher than 5% is a positive sign, indicating a company’s financial health and its ability to return value to shareholders.

NetApp (NTAP) has had a volatile dividend growth history over the last 20 years. The dividend per share increased sharply in 2014, reaching a high of 110 before dropping and fluctuating in subsequent years. This erratic pattern suggests inconsistencies in the company's ability or willingness to maintain stable dividend payouts. The average dividend ratio of 11.71% appears decent but may be misleading due to the large spike in 2014. This inconsistency does not meet the criterion of a stable 5% growth rate annually over the past 20 years, posing concerns about NTAP's dividend reliability and overall fiscal stability. This trend can be seen as bad, as it may reflect instability or shifting strategic priorities in the company’s payout policy.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average payout ratio measures the proportion of earnings a company pays to shareholders in the form of dividends. A lower payout ratio signifies that the company is retaining a larger portion of earnings for growth, which is generally considered healthier financially.

NetApp (NTAP) has an average payout ratio over the last 20 years of 43.08%. This ratio is well below the 65% threshold, indicating a sound financial discipline in distributing dividends. The peak value of 435.73% in 2016 is an anomaly, largely due to a significant dip in earnings while maintaining high dividend payments; however, this was corrected in subsequent years. Other spikes near 96% in 2017 hint at moments of earnings constraints. Nevertheless, the overall trend shows a consistent ability to pay dividends without significantly straining financial health. This trend is favorable for long-term sustainability.

Dividends Well Covered by Earnings?

Explain the criterion for NetApp (NTAP) and why it is important to consider

Dividends are well covered by the earnings refers to the company's ability to pay out dividends from its net income without depleting its core capital. A healthy dividend coverage ratio (DCR) is crucial for dividend sustainability. A DCR above 2 is generally considered good.

Dividends Well Covered by Cash Flow?

Explain the criterion for NetApp (NTAP) and why it is important to consider

Dividends are typically considered well covered by cash flow if the payout ratio is less than 100%. A lower payout ratio suggests the company has ample free cash flow to support its dividend payments, leaving room for reinvestment, debt reduction, or dividend increases.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is crucial for income-seeking investors.

NetApp's (NTAP) dividend payment history for the last 20 years shows a consistent upward trajectory since it began distributing dividends in 2013. The dividend per share increased from $0.30 in 2013 to $2.00 in 2023. This steady increase is a positive trend, indicating NetApp's commitment to returning value to its shareholders. However, during this period, no significant drops of 20% or more have been noted, which further solidifies the stability of NetApp's dividends. For income-seeking investors, this stable and growing dividend trend is beneficial, as it provides a reliable income stream for long-term financial planning.

Dividends Paid for Over 25 Years?

Explain the criterion for NetApp (NTAP) and why it is important to consider

Dividends Paid for Over 25 Years? This criterion assesses the company's consistency in returning value to shareholders through dividends. A company that has paid dividends for over 25 years demonstrates financial stability and a long-term commitment to shareholder returns, which can be essential for income-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for NetApp (NTAP) and why it is important to consider

Share repurchases, or buybacks, can be a vital indicator of a company’s confidence in its future prospects. They often suggest that the firm believes its shares are undervalued, thus making such moves an attractive investment. A reliable and consistent repurchase pattern over 20 years can also indicate strong, continuous cash flow and thoughtful capital management.