NIKE's (NYSE:NKE) Upcoming Dividend Will Be Larger Than Last Year's

NIKE, Inc. (NYSE:NKE) will increase its dividend on the 2nd of January to $0.41, which is 2.5% higher than last year's payment from the same period of $0.40. This will take the annual payment to 2.6% of the stock price, which is above what most companies in the industry pay.

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NIKE's Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend made up a very large portion of earnings and also represented 79% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Looking forward, earnings per share is forecast to rise by 69.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 54%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

See our latest analysis for NIKE

NIKE Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.56 in 2015 to the most recent total annual payment of $1.60. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

NIKE May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, NIKE has only grown its earnings per share at 2.6% per annum over the past five years. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Our Thoughts On NIKE's Dividend

Overall, we always like to see the dividend being raised, but we don't think NIKE will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for NIKE that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.