Nike (NKE -1.26%) investors are likely a happy bunch this month. They have a dividend to look forward to before the year is over. Even more, that dividend will be higher than it was last year. The athletic footwear and apparel company's ability to deliver a double-digit increase during a bear market highlights one of the key advantages of owning quality dividend stocks during times like these.
To better appreciate Nike's dividend, let's look at a few important characteristics about it in this article. In addition, we'll assess the prospects of continued dividend growth.
A double-digit rate hike
The retailer's most recent dividend increase was announced last month and is payable on Dec. 28 to shareholders of record at the close of business on Dec. 5. Shareholders will receive a quarterly dividend of $0.34 per share, translating to an 11% increase over last year's dividend.
This adds to the company's long history of dividend increases. Nike has increased its dividend every year for the last 21 years.
A meaningful dividend yield
While Nike's dividend yield (its expected annual dividend payments as a percentage of the current stock price) of just 1.3% as of this writing is not big enough to get investors on the edge of their seats, it's still meaningful – especially in a market in which many stocks have been pummeled; the S&P 500 is down 17.4% year to date.
Of course, Nike's dividend yield could increase in the years to come. And this leads us to our next point.
Strong dividend growth ahead
There are a number of reasons to expect more dividend growth from Nike going forward. The first is simply the company's habitual annual increases over the last 21 years. A steadily rising dividend not only highlights management's prioritization of its dividend but also the company's underlying strength to support this dividend growth.
Another reason to expect dividend growth from Nike in the coming years is analysts' expectations for strong earnings growth. The current consensus analyst forecast is for Nike's earnings per share to compound at an average annualized rate of 6.5% over the next five years. While this is just an estimate, it's certainly encouraging to know that analysts expect earnings growth from the company. Earnings growth, of course, will help support further dividend growth.
But the final and perhaps most important reason to expect dividend growth is the fact that Nike is currently only paying out about a third of its annualized earnings in dividend payments. This means Nike has plenty of wiggle room for further dividend hikes even if earnings growth flatlined.
Impressive sales momentum
In one final point, investors should keep in mind that Nike's business momentum is actually greater than its reported results indicate. For instance, revenue in the company's most recent quarter may have increased just 4% but revenue was up 10% on a currency-neutral basis. Double-digit top-line growth when adjusting for foreign exchange headwinds is quite an achievement for a company as mature as Nike.
With an underlying business this healthy, a low payout ratio, and a multidecade history of annual dividend increases, there's likely more robust dividend growth ahead for this stock.
