Investing in growing companies is one of the best ways to build wealth, but if those growth stocks also pay dividends, it can make a world of difference to your returns.

A $10,000 investment in Nike (NKE 0.27%) made 20 years ago would be worth $180,000 today. But reinvesting all the dividends would have added another $53,000 on top of that.

Here's a quick look at Nike's dividend history and why it classifies as a great dividend stock.

A hand holding a stash of one hundred dollar bills.

Image source: Getty Images.

Nike's dividend history

Nike's long history of growing revenue, earnings, and free cash flow has paved the way for steady increases in its dividend for over 30 years. Nike paid its first dividend in fiscal 1984, and it has paid a dividend every year since then. 

Nike's iconic brand draws people all over the world to its running shoes and colorful lifestyle sneakers. Early investors in the stock would be close to millionaire status by now. It has grown from a small company generating $270 million in revenue in 1980 to a global sportswear giant with nearly $40 billion in annual sales, and it's still capable of delivering solid growth. 

Before the COVID-19 pandemic, Nike was firing on all cylinders with revenue up 9% year over year through the first half of fiscal 2020 (which ended in May). But recent store closures intended to stop the spread of COVID-19 caused operating results to crater. Revenue was down 38% in the fiscal fourth quarter, which tilted the business over to a net loss of $790 million. 

However, Nike should get through the turmoil and continue paying a dividend to investors. Even with profits down, Nike declared a quarterly payout for July and October. The next quarterly dividend will be paid on Oct. 1 to shareholders who hold shares as of Aug. 31. The payout of $0.245 represents a yield of 0.92%. 

Why Nike can sustain a dividend in tough times

Nike can maintain its dividend for a few reasons. It's got plenty of cash on the balance sheet. It ended the month of May with nearly $8.8 billion in cash and short-term investments, nearly offsetting the $9.7 billion in debt. 

Another good thing about Nike's dividend history is that it consistently maintains a low payout ratio. The dividend is usually less than half of Nike's annual earnings. This low payout ratio gives Nike some wiggle room to manage the dividend, especially during years when profits slip. But more importantly, it allows management to distribute something to shareholders while still having plenty of cash to spend on the engines of growth, which are marketing, design, and new apparel technology.

Nike's dividend gets a thumbs-up 

The payout ratio will spike this year, but it shouldn't be long before Nike's business recovers and gets back to growing earnings. Its China business is already returning to growth, and management expects the rest of the business to recover starting in the second half of fiscal 2021. 

If Nike can keep its dividend payments going during a pandemic when many of its stores are closed, that's a good indication it's a great dividend stock.