Buying stocks that pay dividends can be a great way to build wealth for retirement. Dividend-paying stocks tend to be mature businesses with a long history of consistent profits. Additionally, dividend stocks can be an excellent source of income during retirement.
Regardless of why you are interested in dividend stocks, they have proven wise investments. If you had to pick only one, should you buy Procter & Gamble (PG 0.35%) or Nike (NKE -1.04%)?
Dividend stocks can help supplement income during retirement. Image source: Getty Images.
Procter & Gamble is a Dividend King
International consumer packaged goods giant Procter & Gamble has paid a growing dividend for 65 years. The impressive history earns Procter & Gamble a place among the Dividend Kings. Dividend Kings are companies paying and increasing their dividends for at least 50 consecutive years.
In the last 10 years alone, Procter & Gamble has increased its annual dividend from $1.97 per share in fiscal 2011 to $3.24 in fiscal 2021. Procter & Gamble's dividend payment is good enough for a dividend yield of 2.1%. The yield is among the lowest the stock has provided over the last decade, but that's a result of stock price appreciation.
Importantly, Procter & Gamble's payout ratio, the portion of net earnings it pays in dividends, is 59.5%. That means it can keep growing its dividend payment without paying more than it earns in profits.
And, fortunately for shareholders, Procter & Gamble's sales and profits increased since the pandemic onset, which helped operating cash flow grow to $18.4 billion in 2021 from $15.2 billion in 2019.
Nike is growing revenue at a solid clip
Nike does not have as extensive of a dividend history as Procter & Gamble. Nike has been paying a dividend since 1985, and it has increased annual dividends from $0.35 per share in 2012 to $1.07 in 2021.
Nike's dividend yield is lower than Procter & Gamble's, at 0.72% versus 2.5%. That being said, Nike does not trail Procter & Gamble in all metrics. Nike is a faster-growing company. Nike has grown revenue at a compounded annual rate of 8.3% in the last decade. Meanwhile, sales for Procter & Gamble have remained relatively flat at that same time.
Higher sales have flowed to the bottom line, and Nike's earnings per share have compounded by 12.5% in the last 10 years. Since dividends are paid out from earnings, rising profits make it easier for Nike to pay and raise its dividend payment. Indeed, Nike's dividend payout ratio is less than half of Procter & Gamble's at 28% versus 59.5%.
Overall, Procter & Gamble pays a higher dividend and offers a better dividend yield to investors. However, Nike is growing revenue significantly faster and is paying a relatively low portion of earnings as dividends.
The combination of faster revenue growth and a low dividend payout ratio makes Nike a better dividend stock to buy in 2022 and hold for the long term. Over time, rising sales will boost profits and allow Nike to increase dividends paid.
