It was a week ago when a friend asked for my Top 5 picks, and I promptly dug out 6. I’ve written of them briefly, with some more depth to ROST and UNH. And, I want to move on to write up Nike, NKE, at this time… But, I also want to address one other concern.
It has been said, or asked, to me… Why are these dividend yields on your safe-dividend growers so SMALL?!?!? It’s an excellent question, and one I’ve been asked, and answered, before. In ONE WORD, the real answer is simply: Quality. These particular companies are of such a high quality, that regardless of what their dividend is, investors so want these shares, that they chase share price up to a place where dividend yield is small. But, and here’s the point: That dividend is almost always 40%, or less, of corporate earnings, making the yield incredibly safe, on the one hand. But, on the other hand, the earnings can so typically and reliably be grown at a rate that so handily beats inflation, that these same companies can also safely raise their dividend year-over-year, at a rate that causes the dividend income to rapidly grow to that shareholder that will stick with it for the long-haul.
It’s not a terribly long time before the yield to you, which can easily double every 7 years, or fewer, that over the course of time, yield exceeds that of bonds, and then, beyond a decade and more… yield exceeds anything else that can be found and bought anywhere! And, then, can come that time, when your yield, from shares bought years before, enters into the realm of double-digits, paying you even 10%, and more, on those shares first bought and added to your portfolio. But, you must buy as soon as possible, and hold them for as long as you may own them, for this ‘magic’ to work for you; as time is the hero of this plot! Do it for you, now, and then leave it for those who will come after you, later!
Now, let’s go thru our 3-test process. We first establish the 500 as our bogey, or target, to beat. EPS estimate for the average was $3.16 a share 10 years ago, and is $4.50 at present, for 42.4% earnings growth. There was a GFC that caused estimates to plunge from a Nov. ’07 high of $3.40 a share to a 3/23/09 low of $1.21 a share. That was a plunge of 64.4%. It rose out of that low 272% to our present $4.50 a share. Nike fared better. Ten years ago, projected EPS was for $.81 a share. It stands at $2.48 a share now, and has been being rapidly raised just since the first of the year, and I have heard the same in financial news. That’s a 10-year growth of 206%, or a little better than a triple… over the 500’s 42%. There is a GFC dip in its EPS line of 15%.
The average 500 dividend payout 10 years ago was $.73 a share, and is $1.40 now. That’s almost a double at 92%. Nike’s dividend was $.19 a share 10 years back, and is .$72 a share now, for real “pay raises” amounting to 279%, or well more than a tripling… closer to a quadrupling of income, compared to the 500’s 92% growth. Also, dividend payout was cut by more than 20%, from its peak in the summer of ’08, to its bottom in the first quarter of 2010. Nike never did cut during that time.
Finally, share price for the average of the 500 issues was $48.89 10 years ago, and that average share price is $96.30, for appreciation on the order of 97%. It did plunge more than 50% during the period effected by the GFC in ’08 and ’09. Nike was hurt as well, but not quite as badly. Over the course of the past 10 years, Nike has appreciated by 340%, from $13.16 a share to the present $57.95. this, of course, is far better than a quadrupling in price, and by all 3 measures I just employed, very handily beat the index.
And, what of the future? Well, the 500 is believed to be able to grow as much as 8% per year for the next few years, while it is believed, by analysts, that NKE could grow by perhaps 10%, or some 25% faster. It is also believed that the average of the dividend increases, for the 500, looking ahead, might be on the order of 10%, while NKE may continue at a 14% annual rate.
NIKE looks to have very handily beaten the S&P 500 in the past, and appears to have what it takes to continue to do so going forward. My wife is a PE and Health teacher in a public school, and she likes Nike. She’s the reason I finally decided that we would get some, as I had been a skeptic. It’s a decision I don’t regret.
Here’s to your personal investment success!
Harold F Crowell