Will Nike Raise Its Dividend in 2018?

Investors have seen Nike (NKE 0.38%) bounce back somewhat in 2017, recovering from a terrible performance for the athletic footwear and apparel specialist in 2016. With the rising threat of competition, investors have been worried that Nike was losing its edge, but the athletic retail giant has held up somewhat better than some of its smaller peers in the space.

One area in which Nike has never been a leader is with its dividend. The stock's yield is still dismal, but the company has at least recognized its deficiency enough to put together a solid streak of annual increases over time. Many believe that Nike should make bigger dividend increases, but at least so far, the athletic apparel specialist appears to have had different priorities. Let's take a closer look at Nike to see if it might deliver a more respectable dividend increase in 2018.

Dividend stats on Nike

Source: Yahoo! Finance. Last increase refers to ex-dividend date.

When Nike has boosted dividends in the past

When you look solely at Nike's record of dividend payments, the picture it presents is attractive. For 16 straight years, the athletic apparel specialist has raised the amount it pays to its shareholders each year. The increases have also tended to be substantial, with double-digit percentage boosts having been the norm. The most recent increase of 11% that the company declared last month was actually the smallest percentage raise that Nike had made in years, as the company chose to keep its $0.02-per-share dividend growth pace from recent years unchanged. Percentage increases in the mid-teens have been fairly commonplace for Nike in recent years, with occasional hikes that were even more generous.

NKE Dividend data by YCharts.

It speaks to the success that Nike has had with its stock that those dividend increases haven't been sufficient to do much to improve the dividend yield for the shares. The pace of growth over the past several years has been enough to keep the yield above the 1% mark, but beyond that, investors haven't seen much more forward progress. Moreover, even with the sizable increases that Nike has delivered, the company still pays out a relatively small proportion of its earnings out to shareholders, with its payout ratio remaining near the 30% mark.

Is Nike ready to recover?

Nike's turnaround efforts have been somewhat slower than most investors would have preferred to see. In its most recent quarterly financial report, Nike saw sales stay stagnant, and its bottom line declined from year-earlier levels. The North American market has been extremely challenging because of extensive promotional discounts from competitors and the general shift away from brick-and-mortar retailers toward online sales. The resurgence of Adidas has introduced new pressures that have hit Nike especially hard in its home market.

Image source: Nike.

Yet Nike still has some recent wins to celebrate. The Air VaporMax shoe line has taken over the top spot in U.S. market share for the $150 and up price point. More broadly, Nike has done a good job of bolstering its international business, providing some much-needed diversification to shore up its sagging North American results. Double-digit percentage sales increases in China could be a sign of accelerating future growth, and Nike is working hard to create direct-to-consumer channels that can give it a competitive edge over its smaller rivals.

What's coming for Nike's dividend in 2018?

Nike has sought to balance its dividends with stock buybacks, and that's likely to continue in the future. The need to allocate capital to share repurchases is likely to moderate any dividend increases. At the very least, Nike shareholders should expect a $0.02 rise to $0.22 per share during 2018, but ideally, the company would go with a more aggressive boost of $0.03 or greater to signal the desire to keep its percentage dividend hikes well into the double digits going forward.