 | 24 June 2016: Bought 47 shares of NKE at $52.84 per share. Founded in 1964 and headquartered in Beaverton, Oregon, Nike Inc (NYSE:NKE) is engaged in the design, development, marketing and selling of athletic footwear, apparel, equipment, and accessories. The company's portfolio brands include the NIKE Brand, Jordan Brand, Hurley and Converse. NKE sells its products to retail accounts, through NIKE-owned retail stores and Internet Websites, and through a mix of independent distributors and licensees. |
NKE was the top ranked stock in the June edition of my 10 Dividend Growth Stocks series. The stock is a Dividend Contender with a track record of 14 consecutive years of dividend increases and a 10-year dividend growth rate of 16%. NKE pays quarterly dividends of 16¢ per share in the months of January, April, July and October.
With this buy, DivGro's projected annual dividend income increases by $30.08.
Dividend History
NKE's trailing annual dividend yield is near a 1-year high. I was fortunate to lock in an initial yield on cost (YoC) of 1.21%. (NKE's share price now trades near $58, which means the stock yields 1.10%).
Source: gurufocus
The following table presents NKE's dividend growth rates according to data available at tessellation.com. The data represent dividend growth rates through the end of 2015:
| NKE Dividend Compound Annual Growth Rate | ||||
| 1-Year | 3-Year | 5-Year | 10-Year | 25-Year |
| 16.667% | 15.868% | 10.014% | 16.179% | 15.535% |
NKE has paid 128 quarterly dividends through the end of 2015 and 2 additional quarterly dividends of 16¢ per share so far this year. Here is a chart showing the quarterly dividends paid by NKE since January 2000.
Data source: gurufocus
The company's track record of dividend payments and dividend growth is impressive. But is the dividend sustainable? I consider payout ratio to gauge the likelihood of continued dividend growth. In the following chart, I'm plotting EPS (earnings per share) and FCF (free cash flow) along with dividends per share:
Data source: Morningstar
NKE continues to increase its dividend at a steady pace and it is clear that the dividend is easily covered by both EPS and FCF. Presently, the TTM (trailing twelve month) EPS payout ratio is 30%.
Stock Performance
The company's 10-year price history is shown in the following chart, along with my buy price. NKE has outperformed the S&P 500 by about 400% in the last decade!
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Because NKE pays dividends, the picture looks even better if we include dividends. According to longrundata.com, an investment in NKE 10 years ago would have returned 20.5% on an annualized basis with dividends reinvested.
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Analysis of NKE
For comparison, Morningstar's fair value estimate is $57 and S&P Capital IQ's fair value calculation is $58.60. According to TipRanks, based on 22 ranked analysts offering 12-month price targets for NKE in the last 3 months, the average price target of NKE is $64.39.
The fundamental analysis tools available at finbox.io provide a comprehensive list of stock valuation models and a quick way to view the average fair value estimate of several models given default settings. According to finbox.io, the average fair value for NKE is $47.77, implying a downside of 18%.
Finally, the following earnings and price correlated F.A.S.T.graphs chart for a 12-year period indicates an estimated price of $57.80 for the Normal P/E Ratio of 21.0 for NKE.
Excluding the highest and lowest of these fair value estimates and using the average of the remaining values, I get a fair value estimate of $57.17. My buy price of $52.84 implies a discount to fair value of 7.57%.
The following table provides some key statistics for NKE, with highlighted values relating to my selection criteria. Data sources include the CCC spreadsheet, Finviz, and gurufocus.
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- Dividend streak: at least 5 consecutive years of dividend increases (14 years)
- Dividend growth rate: median of 1-yr, 3-yr, and 5-yr DGR is at least 6% (14.9%)
- Dividend payout ratio: ratio of dividend to EPS is less than 60% (30%)
- Debt ratio: debt to equity ratio is below 60% (17%)
- Fair value: price discount is at least 5% of fair value estimate (7.57%)
- Dividend yield: at least 2% but less than 8% (1.21%)
- Equity valuation multiple: price to earnings ratio is less than 16 (26.87x)
Other Ratings for NKE
The following table presents ratings of NKE from several sources, for comparison to my rating:
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Concluding Remarks
While NKE's dividend yield is way below what I normally look for in dividend growth stocks, the company's dividend growth rate is impressive. And with a dividend payout ratio below 30%, the company should be able to continue growing its dividend at a healthy pace.
In addition to dividends, NKE is showing its shareholder-friendliness through stock buybacks. In fiscal 2016, the company bought back 55.4 million shares for about $3.2 billion. In November 2015, the company approved a new $12 billion buyback plan.
In fiscal 2016, the company earned $2.16 per share, which represents year over year growth of 17%. Revenues rose 6% to $32.4 billion, up 12% on a currency-neutral basis. According to Nasdaq, analysts are expecting NKE to grow earnings by 11% in 2017.
Risks include currency headwinds and intense competition from the likes of Adidas, Puma and Under Armour. Changes in consumer preferences and tastes are risk factors too. Economic downturns could hurt results as more frugal customers shy away from increasingly expensive products.
As mentioned earlier, NKE was the top ranked stock in the June edition of my 10 Dividend Growth Stocks series on Seeking Alpha. The stock beat out two other Consumer Discretionary sector stocks, Target Corporation (TGT) and Ross Stores, Inc (ROST). I'm own TGT but not ROST.
47 shares of NKE adds $30.08 to DivGro's projected annual dividend income. I updated my portfolio to reflect this recent purchase.
Don't you worry to buy shares when they are around all time high and valuation is so demanding?
ReplyDeleteNKE is not near its all time high, and I bought my shares at a discount of 7.5% to fair value. So I guess you're referring to the markets in general being at an all time high. That's exactly why I'm a dividend growth investor. I'm in it for the dividends, so its more important for me to assess whether a stock will continue to pay and increase dividends, not where the stock market is trading in general. And, If the stock markets fall from here, I'll have more opportunities to buy great dividend growth stocks.
DeleteI saw you mention different valuation methods - have you ever checked out gurufocus? they provide some other very cool FMV calcs
ReplyDeleteI use gurufocus frequently, but I haven't really paid close attention to the FMV calcs. I'll take a look. Thanks for the tip!
DeleteOne of my favorite companies. One of my favorite products. I continue to add to this holding of mine monthly. Nice to see the addition in your portfolio!
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Hi TDM -- great to be a fellow shareholder!
DeleteI think this is a great company with solid growth prospects. Its not yielding much right now, but I believe that will change over time!
Nice analysis as always FerdiS. Even tho I consider NKE as a best-in class company, NKE is not even on my watch list just because the yield has always been so low. Guess, I need to add it. I'd love to get it below $50, but I don't think it will get there.
ReplyDeleteFor a "premium" stock like NKE, on the FastGraph, I usually average the two points between the price for the YR marker I look at. I noticed you used the 12 Year, I like to use the 9 Year. On the 9 Year line the price is now between $48.59 & $53.99 plot points. Trying to get value on a stock like this is hard, but I'd consider buying around $51.20 as a fair price so I think you got close. For a low yield company like this I typically like a significant (double-digit) margin of safety-- but this is a world class company so that kind of goes out the window as there is generally never a double-digit margin of safety or discount from FV.
Nice pick up. Added to watchlist.
Hi MikeA -- thanks for reading and commenting!
DeleteYeah, I wouldn't normally look at a stock like NKE for the very reason that the yield is so low. With my 10 Dividend Growth Stocks series, though, I like to mix things up every month just to see if there are other stocks that look interesting. NKE passed with flying colors one I backed off the yield filter.
Thanks also for your advice on how you're looking at the FastGraph data for premium stocks. That is very helpful indeed.
Take care!
Great to take advantage of the recent pull back. Nike is a forever stock.
ReplyDeleteI'd like to think that I'll own Nike forever... Hopefully the stock continues to do well now that I'm a shareholder! Thanks for commenting and all the best to you!
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