The Dow Jones Industrial Average is one of the most watched indicators of the U.S. stock market. It tracks the performance of 30 large companies from different sectors of the economy.
Many investors use the Dow as a benchmark for the U.S. market's performance. The Dow has increased by about 3.4% in 2024 as of this writing, trailing the performance of the broader S&P 500 index by about 4 percentage points.
Despite the Dow's underperformance compared to the S&P 500, some of its components are attractive buys right now. One of the main reasons is most of these companies have a long history of regularly increasing their dividends every year.
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These "dividend growers" have often been among the market's best performers over long periods because of the powerful effect of compounding. When a dividend grower's cash payout is reinvested, it can result in exponential returns on investment.
One of the best Dow-listed dividend growth stocks to consider buying right now is the athletic apparel giant Nike (NKE 0.19%). Here's a brief overview of the pros and cons associated with this top dividend grower.
This beaten-down Dow Jones stock is a buy
Nike, the global leader in sports apparel, has faced some herculean challenges recently, with its shares declining by over 17% in the past 12 months. Softening global economic conditions and competitive pressures have contributed to this double-digit downturn.
On the bright side, Nike has a strong track record of innovation and a powerful brand image that allows it to charge premium prices for its products. In addition, the company recently launched a $2 billion cost-cutting program that should boost profit margins and cushion the blow from a possible global slowdown in consumer spending.
What makes Nike a good dividend growth stock? Nike has a sizzling five-year dividend growth rate of 10.9%, which is among the highest within its peer group. It also has a sustainable payout ratio of around 40%, meaning that its dividend is well supported by its earnings. Sure, Nike's dividend yield of 1.45% is nothing to write home about, but it is about average for a large-cap U.S. company.
The only downside is Nike's high valuation. Despite its modest revenue growth in the low- to mid-single digits, its stock still trades at about 29 times earnings. By comparison, the S&P 500 trades at less than 24 times earnings, underscoring Nike's premium valuation in the large-cap U.S. stock space.
Key takeaway
Nike may have lost some of its momentum, but it is still a great dividend growth stock. The company's strong brand equity, global presence, and focus on innovation should help it move past these current headwinds within the next 24 months.
Patient investors, in turn, may want to take advantage of this favorable dynamic. In the long term, Nike's stock price is highly likely to increase substantially due to its entrenched competitive position, loyal customers, and the steady growth of its core market. Moreover, investors can also harness the power of compounding by reinvesting the athletic apparel giant's regular dividend payouts.
