NYSE:NKE) is about to go ex-dividend in just 4 days. You can purchase shares before the 28th of August in order to receive the dividend, which the company will pay on the 1st of October.” data-reactid=”28″ type=”text”>Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that NIKE, Inc. (NYSE:NKE) is about to go ex-dividend in just 4 days. You can purchase shares before the 28th of August in order to receive the dividend, which the company will pay on the 1st of October.
NIKE’s next dividend payment will be US$0.24 per share, and in the last 12 months, the company paid a total of US$0.98 per share. Based on the last year’s worth of payments, NIKE stock has a trailing yield of around 0.9% on the current share price of $109.75. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether NIKE can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. NIKE is paying out an acceptable 59% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 104% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings – expenses don’t pay themselves – so it’s not great to see it paying out so much of its cash flow.
NIKE paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to NIKE’s ability to maintain its dividend.
here to see the company’s payout ratio, plus analyst estimates of its future dividends.” data-reactid=”37″ type=”text”>Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That’s why it’s not ideal to see NIKE’s earnings per share have been shrinking at 3.0% a year over the previous five years.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, NIKE has lifted its dividend by approximately 14% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it’s always worth checking for when the company can’t increase the payout ratio any more – because then the music stops.
To Sum It Up
Has NIKE got what it takes to maintain its dividend payments? It’s definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. Overall it doesn’t look like the most suitable dividend stock for a long-term buy and hold investor.
2 warning signs for NIKE that we recommend you consider before investing in the business.” data-reactid=”55″ type=”text”>With that in mind though, if the poor dividend characteristics of NIKE don’t faze you, it’s worth being mindful of the risks involved with this business. For example, we’ve found 2 warning signs for NIKE that we recommend you consider before investing in the business.
checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.” data-reactid=”60″ type=”text”>If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.