NETAPP INC (NASDAQ:NTAP): A Top Dividend Stock with High Profitability and Sustainable Yield

For investors looking for a dependable source of passive income, a methodical screening strategy is necessary. One useful method is to search for companies that provide an appealing dividend now and also have the fundamental financial soundness to maintain and possibly increase those payments in the future. This means filtering for stocks with a high dividend rating, which assesses elements like yield, growth, and payout stability, while also demanding satisfactory scores for profitability and financial condition. This detailed screen assists in steering clear of high-yield stocks that are frequently in trouble, concentrating instead on companies where the dividend is backed by a solid business.

NETAPP INC (NASDAQ:NTAP) appears as a candidate from this type of screening process. The data storage and cloud services company displays a profile that matches the central principles of careful dividend investing. Its fundamental report points to a company that combines a shareholder-friendly dividend policy with the operational quality required to support it.

Dividend Profile: A Reliable Payer

The main attraction for income-oriented investors is found in NETAPP INC's dividend traits, which receive a firm 7 out of 10 on ChartMill's Dividend Rating. This rating combines several important measures into one, practical score.

• Yield and Track Record: The company provides a yearly dividend yield of 1.75%, which is higher than the industry average of 0.55% and compares well with the wider S&P 500. Significantly, NETAPP INC has built a dependable record, having paid and not reduced its dividend for at least ten straight years. This past consistency is a vital sign of management's focus on giving capital back to shareholders.
• Sustainability is Key: Possibly the most important part for long-term dividend investors is sustainability. Here, NETAPP INC performs well. The company uses about 35.5% of its earnings for dividend payments, a cautious payout ratio that provides plenty of space to put money back into the business and handle economic slowdowns. Also, its earnings are increasing more quickly than its dividend, creating a natural cushion and a route for future dividend raises without pressuring finances.

This mix, a yield better than similar companies, a long record, and a low, maintainable payout ratio, meets the screening strategy's aim of locating lasting income sources, not only high present yields that could be in danger.

Supporting Fundamentals: Profitability and Health

A good dividend is only as reliable as the company behind it. The screening condition of "satisfactory profitability and health" is important because it confirms the company has the earning ability and balance sheet soundness to continue its payments. NETAPP INC's scores in these areas supply that needed support.

• High Profitability: The company receives a profitability rating of 9. Its return on equity (ROE) of 119.37% and return on invested capital (ROIC) of 19.95% are near the top in its industry, showing very efficient use of shareholder capital. Good and getting better profit and operating margins further prove its capacity to produce cash, the necessary resource for dividend payments.
• Acceptable Financial Health: With a health rating of 6, NETAPP INC displays a varied but generally satisfactory financial state. A major positive is its good free cash flow, which meets its debt responsibilities easily. The company's debt-to-free-cash-flow ratio is a positive 1.48, meaning it could pay off all debt in under a year and a half using its cash flow. Although its debt-to-equity ratio is higher, the solid cash flow coverage lessens this worry, fitting with the screen's need for satisfactory, not flawless, financial health.

Valuation and Growth Context

For a dividend stock meant to be kept for the long term, an excessive valuation can cancel out the income advantages. NETAPP INC seems fairly valued, with a P/E ratio of 14.91 that is lower than most of its industry competitors and the wider market. This indicates investors are not paying too much for the company's earnings and dividend stream.

Growth is steady but positive, with earnings per share projected to increase about 8.5% each year in the next few years. For a dividend investor, this consistent, single-digit growth is often better than unstable, high-growth situations, as it aids the predictable rise of the dividend over time.

A Candidate for Further Research

NETAPP INC demonstrates the kind of company a "Best Dividend" screen tries to find: one with a shareholder-friendly and maintainable dividend policy, supported by high profitability and a fundamentally stable financial setup. The company's high dividend and profitability scores, along with acceptable health and fair valuation, make it an interesting candidate for dividend-focused portfolios.

Interested in examining other stocks that pass similar thorough dividend screens? You can run the screen yourself and see the complete list of results here.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results.