Everyone knows Nike's (NYSE:NKE) slogan "Just Do It" is one of the most catchy ones out there. But, does the company's dividend do it for the investors? Let us find out in this exercise.
- Nike has now paid the same dividend of 36 cents per share for the past 4 payouts, which means a dividend increase is in the cards for the next payout, which is due in December 2012.
- Nike has been paying dividends since 1984 and the dividends have been steadily increasing ever since as shown in the chart below.
- The current yield is a paltry 1.5%, which might make investors wonder if Nike "does it".
- The current payout ratio stands at a comfortable 30%, which gives the company some breathing space.
- While the current yield is agreeably small, the dividend growth rate has been encouraging. The past 5 increases have averaged about 14.4% per year.
- As in earlier exercises, the table below extrapolates the power of dividend growth for an investor who sets aside his/her money with Nike for a 10 year period.
- The assumed dividend growth rate is about 10%, which might seem high but we must remember that Nike is still considered a (relative) growth story. The expected earnings growth rate of about 8%, combined with a low pay out ratio should make it possible for Nike to have double digit dividend increases.
- We expect the new dividend to be at least about 40 cents a share based on this moving average.
- As you can see, the dividends and yield on original cost almost triple for the patient investor, assuming Nike continues to pay out a good fraction of its earnings as dividends.
Conclusion: So, does Nike do it for you? We believe it does for investors with a long horizon. Sure, there are so many other companies that have a higher yield but Nike is perhaps one of the better "packages" you can find out there: great brand name but still with potential for more international growth, low but growing dividends and an industry leader. Starbucks (NASDAQ:SBUX) and Ross Stores (NASDAQ:ROST) are other examples that fall into this category. Any weakness coming out of Europe especially could prove to be a good buying opportunity on this stock. With the upcoming dividend increase, even a slight pullback in the stock price would suddenly yield us 2%.
Disclosure: I 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.