Stocks rose again today, ending a strong week on a strong note. The S&P 500 (^GSPC -0.22%) added 0.38% while the Dow Jones Industrial Average (^DJI 0.06%) gained 0.52%. Those gains pushed both indexes to more than a 3% gain over the past five trading days:
Two consumer goods companies led the way higher for markets today. Nike (NKE 0.95%), the Dow's current top performer for 2015, spiked after announcing shareholder-friendly capital allocation moves. And off-price retailer Ross Stores (ROST -0.75%) rose after posting surprisingly strong third-quarter earnings results.
Nike sends shareholders more cash
Nike led the Dow higher with a 5% jump today. The global sports apparel giant is currently the blue-chip index's best performer on the year, up 37% compared to a flat overall market.
The news behind today's move was a press release with three major pieces of news :
- Nike approved a new $12 billion stock repurchase plan.
- The company boosted its dividend by 14%.
- It announced a two-for-one stock split.
As my foolish colleague Alex Dumortier pointed out, the stock split means nothing to the value of Nike's business. But it will have an impact on the price-weighted Dow, shrinking Nike's influence on the index's moves.
Image source: Nike.
The share buybacks and dividend jump, in contrast, both promise to drive higher returns for shareholders. Sure, Nike's 0.85% payout makes it one of the lowest yielding stocks in the Dow, but that dividend is growing rapidly – up from $0.60 per share in fiscal 2011 to a projected $1.28 per share next year. Share buybacks are providing a major lift to earnings growth: While net income is up an impressive 160% over the last five years, a declining share count has produced an over 200% gain in EPS:
NKE Normalized Diluted EPS (TTM) data by YCharts
The real takeaway is that Nike's management aims to strike a balance between investing in market gains and returning cash to shareholders. "We are built for growth, while also staying committed to creating shareholder value over the long term," CEO Mark Parker said in a press release.
Ross Stores grows in a tough retail environment
Discount retailer Ross Stores' stock rose 10% on twice its usual trading volume after the company posted surprisingly strong third-quarter results. Revenue, profitability, and earnings growth all beat management's expectations .
Comparable-store sales improved by 3%. That was a slight slowdown from the prior quarter's 4% gain, but it bested the 1% to 2% range that management gave investors back in August.
Image source: Ross Stores.
Operating margin also logged a surprising uptick to 12.1% of sales, which executives said was due to a slight shift toward higher-margin merchandise sales. And Ross' $0.53 of earnings per share beat consensus analyst estimates of $0.50 per share. "These results demonstrate that customers continue to respond positively to the wide assortments of fresh and exciting bargains we offer throughout our stores," CEO Barbara Rentler said in a press release.
Yet Ross left its conservative holiday forecast unchanged despite those strong results. Management still believes comps growth will be between 0% and 1% in a season that will be marked by intense competition. "While we hope to do better, we believe it is prudent to maintain our prior guidance for this period," Rentler said. In pushing the stock up sharply today, investors were either relieved that Ross didn't cut its fourth-quarter growth outlook as some other retailers have -- or they're betting that the company will outperform executives' forecast for the second straight quarter.
