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Nike’s 2015 Shareholder Returns, Dividend Policies, and Valuations

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Analyzing Nike’s stock price drivers

Nike’s (NKE) diluted earnings per share (or EPS) grew 24.6% year-over-year to come in at $3.70 in fiscal 2015. For 1Q15, EPS rose 25.6% to $0.98. EPS growth was helped by rising profitability, as we discussed in part seven, and a lower tax rate and share count.

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Dividends and share repurchases

Last year, Nike incurred $3.4 billion in shareholder payouts by way of dividends and share repurchases. Dividends per share (or DPS) came in at $1.08 for the year, an increase of 16.1% year-over-year. Nike has raised its dividends for 14 years in a row now.

However, though Nike pays a dividend, it’s something of a rarity among its growth-oriented peers. Lululemon Athletica (LULU), Under Armour (UA), and Skechers (SKX) shareholders are yet to see a dividend payout.

That said, Nike’s payout ratio of 28.4% last year is lower than the overall consumer discretionary (XLY) sector at 39.9%, and that of mature industry rivals Adidas (ADDYY) and VF Corporation (VFC). ADDYY and VFC paid out 54.8% and 45.7% of their earnings, respectively, as dividends in their last fiscal years.

Nike’s lower payout ratio is a reflection of the relatively higher growth opportunities Nike is expecting to finance via operating cash flow. The lower payout ratio is also reflected in the company’s relatively higher valuations compared to most peers, as the chart above shows.

Record high

Nike’s (NKE) upbeat earnings report and outlook for fiscal 2016 propelled the stock to a new record high of $109.71 on June 26. Nike’s stock has provided total returns of 14.8% year-to-date, compared to 3.1% for the S&P 500 Index (SPY) and 1.9% for the Dow Jones Industrial Average (DIA)[1. As on June 26].

Nike is part of the iShares Russell 1000 Growth ETF (IWF) and the iShares S&P 100 ETF (OEF). IWF and OEF have ~18.9% and 10.7% of their respective holdings invested in the consumer discretionary sector.

The next article will discuss the company’s outlook.

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