We planned on buying 2 more stocks before the year would end. Well, I’m glad that we already found 1 of them. In our watch list we mentioned a few Consumer Staple companies we had our eyes on. Nike being one of them. Although this powerhouse in athletic footwear and apparel is not a typical dividend stock, it’s wide moat and innovative business model says it’s a promising portfolio addition nonetheless.
Nike takes a up a huge spot in the sports apparel market, and in recent years it’s brandname takes on similar prestige as to Starbucks or Apple. Being a world famous brand showing up everywhere around us and are moving whole generations into buying, using and loving their products. Where even a simple tag line can move mountains: just do it!
It’s clear I really love this company. I’m very appealed to their products and don’t mind to pay up for some quality products (with flashy designs). Even though it’s more of a luxury than a need.
It’s not the average dividend company to invest in for DGI investors. With a small dividend yield of only 1.26%, it might not even pop up on your radar. Their growth rate however is quite impressive, with an average of 15% for the last 10 years… Dividends are growing for the last 15 years already, making it a Dividend Contender following the CCC list of Dave Fish.
According to Morningstar:
Nike Inc designs, develops and markets footwear, apparel, equipment, and accessory products. It is a seller of athletic footwear and athletic apparel. It sells its products through NIKE-owned in-line and factory retail stores and internet websites
According to Nike itself:
NIKE, INC. IS A GROWTH COMPANY. We create innovative, must-have products.
We build deep, personal connections with consumers. And we deliver an integrated marketplace with compelling retail experiences.
To me, Nike is known as a very innovative company, producing products of solid quality and care for how people experience them. And they’re not only selling a product, but a whole lifestyle of greatness. Stimulating people to get the most out of them self, all the time.
All in all, there is a lot to love with this company. But recent years has shown there is also some fierce competition in the market of sports apparel. Both Adidas and Under Armour are big competitors of Nike. While Under Armour is a bit of newcomer to the average consumer, they are growing at a very fast rate in the past years. Adidas already has a more established brandname but is recovering from a slow market in the years before this one. The year 2016 has been nothing but good for these world famous companies. And it might make you think of how Nike can maintain it’s large marketshare…
For a longer time Nike has been (and might still be) trading against a higher than average price. Morningstar currently rates this company only 3 stars, and has given the company a fair value price of $58.92. Which would mean the company is currently 13% under fair value, so not too bad at all. The interesting thing here is that Nike hasn’t really got along with the recent price rally in the markets for 2016.
Compared to the S&P 500 the trend is really diverging. The return of the S&P 500 was +10.59 year to date, as were Nike has a downward trend of -18.69% in appreciation for this year.
The reason for their lagging stock results are the increasing competition (mostly by Under Armour) and concerns on slowing sales. A big chunk of their sales are generated in China. The trend of slowing sales in emerging markets, and particular China, we have seen with several big companies and across different sectors, Unilever being an good example.
The market price seems to be fallen behind and could mean an amazing buying opportunity has presented itself. The key question here is if the devaluation, and thereby the current worth, is deserved or not?
The dividends are, as I stated earlier, a bit different than the average blue chip companies out there. Their yield of 1.26% is quite moderate, but in my view not that bad. With a growth rate of 15% average over the past year, and a 16.7% hike in 2016, their DGR is very stable and sets a consistent growth rate. Within ten years from now their dividends will grow from $0.72 a year to $2.07 a year per share, if it continues to grow at the same pace. And with a dividend pay out ratio of only 28%, there sure is plenty of room to grow more. With current prices the company is all set to deliver double digit returns for the DGI investor.
So what about their financial stats?
Recently they published their quarterly results, with promising growth rates of 6% in revenue and earnings growing by 7% quarter over quarter. And besides the dividends, they are also highly active in buying back shares. In the most recent quarter they have bought back 17 million shares, while there is still around 9 billion left in the buy back program of 4 years.
Earnings per share are still great with a 16,7% growth rate, but are down compared to last year were the EPS was still growing strong at a rate of almost 25%.
Overall they have a strong financial health and there is not much to complain about. When looking at value the stock seems fair priced. The P/E ratio is currently on 23.4, not far off from their 5 year average of 24.7.
Morningstar rates the company 3 stars, or fair value. Giving their a wide moat, as well as their competitors, gives them a solid base to grow even further.
The fair value price according to Morningstar is $58.92 (on 14 december 2016). The stock is currently trading at $51.30 sets them -13% below fair value.
We bought 42 shares of Nike in the beginning of december for the price of $47.70 and with a total worth of $2003.40 (cost basis).
This was right before they released their quarterly report and has already resulted in a price appreciation of 7.5%.
With 42 shares in the pocket we also added 28 euro in forward yearly dividend income (net dividend).
This might have been our last stock buy for the year. We have still some cash available for a next purchase, but are still thinking on a few companies, especially Visa and Starbucks (yes SBUX is still on our minds…) and have to be quick if we still want to make a move this year.
Anybody making some moves before the year ends? Or did you already made your last buy?