NetApp Offers Rising Dividend Income, Six Consecutive Annual Dividend Hikes (NTAP)
By: Ned Piplovic,
NetApp, Inc. (NASDAQ:NTAP) has rewarded its shareholders with rising dividend income distributions every year since introducing dividends six years ago.
While average compared to the overall market yields, NetApp’s current dividend yield outperformed average yields of its industry peers by substantial margins. Additionally, NetApp’s current dividend payout ratio indicates that the company’s dividend distributions are well covered by its earnings. Barring any unforeseen issues, NetApp should be able to continue its streak of rising dividend income distributions into the near future.
The current dividend payout ratio of 36% is at the lower end of the 30% to 50% sustainable range. In addition to being on the lower end of the sustainable range, NetApp’s current yield is 45% lower than the company’s own 65% average payout ratio over the past five years.
The current 36% ratio indicates that NetApp currently distributes a little more than one-third of its earnings as dividends and retains nearly two thirds of its earnings for expansion and supporting operational business needs. While indicating that the company should be able to support the rising dividend income distributions, the low payout ratio also gives the company room to increase the share of earnings it returns to shareholders as dividends for higher dividend payouts.
In addition to the rising dividend income, NetApp delivered capital gains of nearly 10% for a double-digit total return over the past year. While investors looking for a pure income play might not find NetApp’s current yield sufficient, investors looking for a more balanced return from dividend income and asset appreciation should evaluate NetApp using their own equity selection criteria. After a thorough evaluation, interested investors should consider taking a long position before the April 5, 2019, ex-dividend date to ensure eligibility for the next round of dividend distributions. NetApp will distribute dividends to all eligible shareholders on the April 24, pay date.
NetApp, Inc. (NASDAQ:NTAP)
Headquartered in Sunnyvale, California, and founded in 1992, NetApp, Inc. provides software, systems and services for data sharing and management, as well as private and public clouds. The firm offers its cloud data services through multiple platforms, such as ONTAP cloud storage data management, NetApp cloud sync data synchronization services, NetApp Software as a Service (SaaS) backup for Microsoft Office 365, NetApp cloud backup solutions and OnCommand management software. Additionally, NetApp also provides cloud Infrastructure solutions, including FlexPod — a portfolio of pre-validated designs and integration — NetApp advisor converged systems, NetApp HCI enterprise-scale hyper converged cloud infrastructure and NetApp StorageGRID Webscale object storage software. Furthermore, the company also offers flex array storage virtualization, backup management, business continuity and data compliance software, as well as storage operating systems. NetApp also has a strategic partnership with Lenovo to help customers modernize IT and enhance their digital transformation. The company is a component of Nasdaq 100 and the S&P 500 Index.
NetApp’s current $0.40 dividend payout is double the company’s $0.20 quarterly distribution amount from the same period last year. This new quarterly payout amount is equivalent to a $1.60 annualized dividend distribution and corresponds to a 2.4% forward dividend yield, which is 20% higher than the company’s own 2% average yield over the past five years.
In addition to exceeding its own five-year yield average, NetApp’s current dividend yield outperformed the 0.98% average yield of the overall Technology sector by more than 140%. Furthermore, NetApp’s current yield is also almost 60% higher than the 1.5% simple average yield of the company’s peers in the Data Storage Devices industry segment. The wide advantage over industry peers is not unusual. Most technology companies — especially startups — do not distribute any dividends because they divert all their available funds to research, development and business expansion.
Even NetApp followed a similar path and waited more than two decades after its formation to start paying dividends. However, once NetApp started dividend distributions in 2013, the company’s rising dividend income payouts advanced the annual payout amount 167% over the past six years. That level of advancement corresponds to an average growth rate of 17.8% per year.
Even with a share price drop of more than 35% from its 52-week high, the share price managed to post a gain and combined with the rising dividend income payouts for a total return of 12.4% over the past year. The share price lost half of its value during 2015, which limited the total returns over the past five years to 97%. However, the timing of that same price dip helped the share price post a total return of nearly 170% over the past three years.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.