Stock Analysis

DICK'S Sporting Goods (NYSE:DKS) Is Increasing Its Dividend To US$5.94

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NYSE:DKS
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The board of DICK'S Sporting Goods, Inc. (NYSE:DKS) has announced that it will be increasing its dividend on the 24th of September to US$5.94. This will take the dividend yield from 1.3% to 5.0%, providing a nice boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that DICK'S Sporting Goods' stock price has increased by 42% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for DICK'S Sporting Goods

DICK'S Sporting Goods' Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, DICK'S Sporting Goods' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 26.6%. If the dividend continues along recent trends, we estimate the payout ratio could be 75%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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NYSE:DKS Historic Dividend August 30th 2021

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was US$0.50 in 2011, and the most recent fiscal year payment was US$1.75. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that DICK'S Sporting Goods has grown earnings per share at 39% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

DICK'S Sporting Goods Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for DICK'S Sporting Goods (of which 1 is potentially serious!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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What are the risks and opportunities for DICK'S Sporting Goods?

DICK'S Sporting Goods, Inc., together with its subsidiaries, operates as a sporting goods retailer primarily in the eastern United States.

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Rewards

  • Trading at 8.4% below our estimate of its fair value

Risks

  • High level of non-cash earnings

  • Significant insider selling over the past 3 months

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