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How Dividends Change the Game for Nike Shareholders

The wealth-building power of compound interest will never cease to amaze me. It's a story of patience and attention to detail, where small, short-term differences add up to massive divergence over decades. And in the end, the biggest winners don't always deliver the fattest share-price returns.

Nike (NYSE: NKE  ) may be a fresh face among the 30 Dow Jones (DJINDICES: ^DJI  ) tickers, but it's an old hand at the dividend game. Its fundamental credentials are impeccable: The sportswear giant has paid uninterrupted quarterly dividends since 1984, and has raised payouts in each of the last 10 years. Only five current Dow stocks have boosted their dividend policies faster than Nike over the last decade.

On the other hand, Nike offers one of the reformed Dow's lowest dividend yields today. The 1.2% yield beats the best savings and money market bank accounts on the market, but it's a far cry from the Dow's 2.6% average yield.

Weighing Nike's income-generating pros and cons is not a slam-dunk exercise. Does the low initial yield hold Nike's returns back in the long term or does its generous payout growth make up for the low starting point?

Here's how that story has played out over the last 10 years:

NKE Chart

NKE data by YCharts

Reinvested Nike dividends would have boosted your returns from 355% to 428%, which is a 16% difference. At the same time, dividend reinvestments in the SPDR Dow Jones Industrial Average (NYSEMKT: DIA  ) exchange-traded fund would have lifted your Dow returns by just 7.4%.

I think it's fair to say that Nike's dividend growth outweighs the soft starting yield. I'm actually impressed that Nike has manged to keep its yields above 1% while more than quadrupling share prices in the last decade. That's no easy feat, and it speaks highly of Nike's commitment to healthy dividend policies.

NKE Dividend Yield (TTM) Chart

NKE Dividend Yield (TTM) data by YCharts.

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  • Report this Comment On September 25, 2013, at 5:21 PM, prginww wrote:

    Amen to dividend reinvestment. Been doing it since 2009 with TPZ which pays monthly. Dividend % on original cost basis is now up to 7%. Good for us.

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9/27/2016 4:45 PM
^DJI $18228.30 Up +133.47 +0.74%
DIA $182.00 Up +1.25 +0.69%
SPDR Dow Jones Ind… CAPS Rating: **
NKE $55.34 Up +0.94 +1.73%
Nike CAPS Rating: *****