NETAPP INC (NASDAQ:NTAP) Presents a Compelling Case for Dividend Investors

For investors looking for dependable income, dividend investing is a proven way to create wealth. One organized way to find good dividend stocks is to filter for companies with good dividend traits and sound basic business health. This method focuses on stocks with high dividend grades, making sure payments can continue, while also needing good earnings and financial strength scores to verify the company can keep paying dividends in different market environments. This even-handed strategy helps investors steer clear of the usual mistake of pursuing high yields without looking at the financial soundness of the business.

NETAPP INC (NASDAQ:NTAP) appears as an interesting candidate from this filtering process, especially for investors concentrating on lasting dividend income along with acceptable growth prospects. The data storage and management company displays a number of traits that dividend investors usually look for, mixing appealing income creation with basic business soundness.

Dividend Traits

NetApp's dividend profile displays a few good qualities that add to its solid 7/10 dividend grade. The company keeps a fair dividend yield while showing a dependable payment history and manageable payout ratios.

• Current dividend yield of 1.69%, placing it well next to similar companies
• Ten-year history of steady dividend payments with no cuts
• Manageable payout ratio of 35.95% of income, leaving plenty of room for internal investment
• Small but steady dividend growth of 1.72% per year

The company's dividend continuity is especially notable since earnings growth is higher than dividend growth, showing management's focus on keeping payments dependable while saving financial room to maneuver. This measured balance between rewarding shareholders and keeping earnings for business growth shows a developed method for using capital.

Earnings Base

NetApp's very good earnings grade of 9/10 gives important backing for its dividend continuity. The company shows sound operational effectiveness and steady profit creation across several measures.

• Return on Invested Capital of 19.25%, doing better than 85% of similar companies
• Good profit margin of 17.77%, in the top 7% of the industry
• Sound operating margin of 21.79%, showing effective operations
• Notable gross margin of 70.00%, suggesting pricing strength and cost management

These earnings measures are important for dividend investors because they show the company's ability to create enough profit to maintain and possibly increase dividend payments over time. The steady gain in margins over recent years adds more support for dividend dependability.

Financial Soundness Check

With a soundness grade of 6/10, NetApp keeps acceptable financial steadiness even with some points that need watching. The company's solvency measures display both positive aspects and points for investors to note.

• Debt to free cash flow ratio of 1.50 years, showing good ability to repay debt
• Current ratio of 1.31 and quick ratio of 1.28, giving acceptable cash availability
• Altman-Z score of 2.96, pointing to low near-term risk of failure
• Higher debt-to-equity ratio of 2.55, but lessened by good cash flow coverage

While the higher debt-to-equity ratio deserves notice, the company's good free cash flow creation gives assurance about its ability to handle debts while keeping dividend payments. The continuing share buyback program further shows management's belief in the business's ability to create cash.

Price Context

NetApp's price presents a noteworthy case for dividend-focused investors, trading at levels that seem fair compared to both similar companies and wider market measures.

• P/E ratio of 16.54 next to industry average of 28.57
• Forward P/E of 13.76 compared to S&P 500 average of 23.29
• Enterprise Value to EBITDA ratio placing it lower priced than 73% of rivals

These price measures indicate the stock is not too expensive for its profit generation, giving some safety buffer for income-focused investors. The fair price along with good earnings creates a positive risk-reward situation for dividend investors looking for both income and possible share price gains.

For investors wanting to look into similar options, more filtering results are available using the Best Dividend Stocks screener, which uses similar rules to find companies with good dividend traits backed by sound basics.

Disclaimer: This analysis uses basic data and filtering rules described in the article and is not investment advice. Investors should do their own research and think about their personal money situation before making investment choices. Past results do not ensure future outcomes, and dividend payments depend on company decisions and market situations.