Nike (NKE 0.36%) has been a leader in athletic footwear, apparel, and accessories for decades. The company's constant innovation has cemented its strong industry position, which in turn has helped it successfully ward off competitors and remain the world's most dominate athletic brand.
Not surprisingly, investors along for the ride have benefited immensely. Shares of Nike are up approximately 200% in the last five years, and over 50% in 2013 alone. The best part is that the company's above-average returns are likely to continue long into the future.
What's driving Nike's growth?
The main reason for Nike's appreciation has been the company's reliable revenue and earnings-per-share growth. This is derived directly from the brand's ability to innovate traditional product categories and create entirely new ones.
Despite already controlling large amounts of the athletic footwear and apparel markets, management at Nike is still trying to innovate in each space. In Nike's most recent earnings release, President and CEO Mark Parker stated, "Our ability to innovate, it's what drives our growth and it always starts with the athlete."
Parker then began to explain the myriad of new product offerings the company was set to introduce. These include the new Nike Free Flyknit running shoe, the Hypervenom football boot, and various additions to the Dri-Fit apparel product line. The ability to expand existing product lineups and venture into new ones is of course only made possible by the strength in Nike's core businesses.
On that front, Nike is doing quite well. Nike brand revenue was up 7% in the most recent quarter, highlighted by strength in the company's direct-to-consumer and online businesses. Nike's essential North American business also performed admirably, growing revenue an impressive 9%. This was driven primarily by growth in the segment's basketball and running categories.
The new product introductions and continued strength in Nike's core businesses is translating into sustained and robust growth. The following is a breakdown of Nike's projected growth rate compared to competitors Under Armour (UA +4.98%) and VF Corporation (VFC +1.13%):
|
Company |
Nike |
Under Armour |
VF Corp |
|---|---|---|---|
|
Revenue Growth 2014 |
8.7% |
21.9% |
8.4% |
|
EPS Growth 2014 |
16.1% |
24.3% |
12.6% |
The data above indicates that Nike is growing admirably compared to its competitors. Although the company's revenue and EPS growth is expected to be notably slower than that of the younger and smaller Under Armour, Nike's growth is projected to be more robust than that of VF Corp, a solid growth company in its own right.
Additionally, Nike's growth does not come at too steep a price for investors as the company's valuation multiples currently appear attractive. Nike's forward P/E of 22.29 is significantly lower than Under Armour's forward P/E of 44.92 and only slightly higher than VF Corp's forward P/E of 18.94.
Impressive dividend growth
Nike currently pays an annual dividend of $0.96, which equates to a yield of 1.20%. The company has excelled at raising dividends in recent years, and this was perfectly demonstrated last week when management announced that it was raising Nike's quarterly dividend to $0.26 from $0.21. This represents an increase of 14%.
This most recent increase follows in a long line of dividend raises from Nike over the last decade. The following is a breakdown of the company's impressive dividend history:
|
Company |
Nike |
|---|---|
|
Annual Dividend Yield (10-Yr.) |
1.64% |
|
Annual Dividend-Growth (10-Yr. |
19.9% |
|
# Years of Dividend-Growth (10-Yr.) |
10 |
|
Annual Dividend Yield (5-Yr.) |
1.72% |
|
Annual Dividend-Growth (5-Yr.) |
13.9% |
|
# Years of Dividend-Growth (5-Yr.) |
5 |
|
Annual Dividend Yield (3-Yr.) |
1.64% |
|
Annual Dividend-Growth (3-Yr.) |
13.8% |
|
# Years of Dividend-Growth (3-Yr.) |
3 |
Over the last decade, management at Nike has raised the company's dividend every year at rather substantial rates. Despite rapid stock appreciation, the company's yield has also remained close to the 1.5% threshold.
Not only does Nike's solid dividend history mean that investors can expect dividend raises every year from the company, it also means that a cut to Nike's dividend is extremely unlikely.
Share buyback program
Although it was announced almost a year ago, Nike's share buyback program deserves to be mentioned here because it is so massive in scale and has only just begun to take effect.
In September of 2012, the company announced a repurchase program in which it would buy back $8 billion worth of stock over a four-year period.
This program followed closely on the heels of Nike's previous $5 billion share repurchase program which was announced in 2008. The pattern now demonstrates that management is dedicated to further increasing shareholder value through share buybacks. It also means that future repurchase programs are likely to happen after the current one ends.
Just do it!
Nike is a relatively mature company, but it is one that is aging very gracefully. Although the company's revenue growth has understandably slowed from its days of early expansion, management is still finding ways to significantly expand the company's reach and grow sales and earnings in the process.
Furthermore, management seems intent on increasing shareholder value by committing to dividend growth and aggressive share buyback programs. For these reasons, the company remains one of the most appealing long-term growth prospects in the market today.
