If you're looking for a solid dividend stock that can deliver both income and growth, you might want to look no further than Dow Jones Industrial Average ($DOWI) component Nike (NKE). Nike is not just a sports apparel giant, but also a smart and innovative company that knows how to adapt to the changing market and consumer needs.
In addition to boasting a loyal fan base and a diverse product range that covers footwear, clothing, equipment, and digital platforms, Nike has also been able to overcome some of the unique challenges the industry has faced - such as supply chain disruptions and increased competition.
But why should you buy Nike right now, especially in these uncertain economic times? Let's find out.
1. A Huge Insider Buy Shows Confidence in Nike’s Future
One really good reason to consider getting in on Nike right now? Robert Holmes Swan, who currently sits on Nike's board and used to run Intel, just bought a bunch of Nike shares. This happened on Oct. 2, when Swan picked up 13,072 shares at an average price of $96.13. That's about $1.26 million he invested.
What's really interesting is that insiders like Swan usually have the inside scoop on what's happening with the company. They know about the plans, challenges, and strategic moves set to influence NKE down the road. In this context, Swan's purchase is a big thumbs-up for Nike around current levels. It's like he's saying, "I believe in this company!" - except he's not just talking; he's backing it up with his own cash.
As investors, insider buying is a signal worth paying attention to. Following Swan's lead might just be a smart move - but his recent NKE purchase is just the start of the stock's story.
2. Nike’s Earnings Surpass Expectations
Swan's recent insider buy follows right on the heels of Nike's strong first quarter of fiscal 2024. This quarter ended on Aug. 31, and Nike really nailed it - the company pulled in $0.94 per share, topping the expected $0.74 by a wide margin.
They made $12.94 billion in revenue, which was a bit below expectations, but still 2% more than last year. Digging deeper, Nike's gross margin slipped just a smidge, down to 44.2%, but it was better than the 43.7% that analysts predicted.
Nike's management were pretty stoked, saying, "Q1 offered proof of what Nike can deliver when we connect great innovation, great storytelling, and great marketplace experiences to consumers."
Investors were quite happy with this performance, too, and the stock jumped more than 10% post-event on Sept. 29. Even after that rally, it's worth noting that Nike's stock is trading at a roughly 44% discount from its all-time high of $179.10, set back in November 2021.
3. Nike’s Earnings Growth Is Expected to Outpace the Market
Those impressive Q1 results likely weren't a one-off performance, either. Nike tends to beat on earnings more often than not, and forward-looking growth forecasts call for continued bottom-line improvement.
Looking at the numbers, analysts are expecting earnings per share of $0.85 for Q2 2024, which is unchanged from last year. But for Q3, the consensus calls for $0.98 per share – a 24% boost from the previous year. For the full fiscal year 2024, Nike is expected to earn $3.74 per share, up more than 15% from the prior year.
Looking further ahead, estimated annual earnings are expected to grow at over 16% in the next fiscal year, with a growth rate of 14.62% expected over the next five years. That's a lot better than the S&P 500's expected growth rates of 10.2% and 8.5%, respectively. In simpler terms, Nike is likely to outshine the market in earnings growth, and that's usually a recipe for higher stock prices.
To prove this potential, Nike has already been raking in the dough across its different business segments and regions, especially in its digital channel, which shot up by 42% in the first quarter. And they managed to boost gross margin by 170 basis points to 46.5% by selling at higher prices, cutting down on discounts, and offering a better mix of products. This strategic approach should support continued earnings growth in the quarters ahead.
4. Nike’s Dividend Game Is Strong
Another solid reason to consider Nike is its impressive track record with dividends. Nike has been dishing out dividends for 33 years straight, and has been upping the size of its payouts for the last 10 years.
Right now, they're handing out a regular dividend of $0.34 per share every quarter, which adds up to $1.36 per share annually, for a yield of 1.37%. That might not seem sky-high, but the growth rate compares quite favorably to the rest of the sector. In fact, NKE's 10-year dividend growth rate is 13.98%, compared to the sector median of 8.91%.
Plus, Nike's dividend payout ratio - which tells you how much of their earnings they hand out as dividends - is a reasonable 40.31%. This means they still keep plenty of cash to invest in their business, while giving their shareholders back a nice slice of the dividend pie.
5. Analysts Predict Plenty of Upside Ahead
Nike is getting some serious love from the analyst community. Among those tracking the stock, 15 are shouting "Strong Buy," 3 are going with "Moderate Buy," 7 are sticking with "Hold," and there's just 1 analyst who's recommending a "Strong Sell."
The average price target for NKE is $123.43, which implies expected upside of 23% from current levels.
All of these thumbs-up from analysts are a good sign, particularly when backed by Nike's strong earnings and promising outlook.
The Bottom Line
To sum it up, Nike is looking pretty compelling for investors. It's got insiders putting their money where their mouth is, strong earnings, a solid dividend history, analysts cheering it on, and some serious potential for future growth. So, if you're on the hunt for a winning investment, don't sleep on Nike – it's got the kicks to go the distance in your portfolio.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
