High Dividend Stock to Watch
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
This is the eleventh year in a row in which this leading distributor of sports Footwear, Apparel and Equipment has increased its annual dividends. Nike (NYSE: NKE) has always been known for delivering great value to its shareholders. Over the last eleven years Nike has returned as much as ~$14 billion to its shareholders via dividends and share repurchases.
Recently, the company announced a hefty 17% hike in its quarterly dividend payable in Dec 2012. Following this announcement its stock price witnessed an upside movement of ~9%. The below mentioned table shows the percentage growth in dividends by Nike over the previous year in the last few years. Nike is also known for its strong R&D and continuous innovation in its product line. Progressing with its dedication towards providing athletes with the most advanced products, Nike always has its spotlight on new technology such as Flyknit, Nike Free and lightweight running and the Jordan Retro Lines. And, looking at its leading position and constant innovation techniques I expect the upward trend in its stock price to continue in the future.
Now, let’s have a look at how the other players in this industry are operating -
The second largest maker of sporting goods Adidas AG is the biggest competitor to Nike. However, it is continuously losing its grip in the US market since its acquisition of Reebok in 2006. Adidas is striving hard to revamp its brand Reebok to generate higher revenues, but it has failed to do so with the ongoing poor performance by Reebok. Adidas sales fell by ~5% in the US whereas Nike saw an increase of ~23% in North America in the last quarter. As the US is the biggest sports apparel market, it plays a significant role in the earnings of these companies. Reebok's lagging performance is an opportunity for Nike to gain more market share.
Talking about Nike's another competitor V.F. Corporation (NYSE: VFC) which is focusing on international expansion for driving its future growth. The company has shifted its focus to the Asia Pacific region and is aiming at generating ~$1.1 billion over the next five years from this region. With its main focus on China, the company has planned to increase its store count to 6000 from the current level of just 2300 stores by 2017. I believe this expansion strategy will reduce its dependency on the single market and will enhance the company's top line growth in the long run.
Another player in the industry is PVH Corporation (NYSE: PVH) which recently announced its 3Q12 results with net income up by ~47% to ~$165 million y/y. Following this its stock price reached a new high of ~$115 with a gain of ~25% in the last month. The company has some big brands in its portfolio such as Tommy Hilfiger and Calvin Klein which have posted robust sales since the last three years. Recently the company announced that it is planning to merge its product line under its Calvin Klein brand to buy its rival Warnaco Group Inc for ~$2.8 billion. This would further enhance its portfolio for a greater presence in the market.
Turning back to Nike, I see various aspects for the company which would help it in the long run to retain its leadership position and returning higher returns to its shareholders. Let's have a look at them in detail.
This year Nike announced its divestment of two wholly owned brands, Umbro and Cole Haan. It has made this move to focus mainly on its core and other faster growing brands such as Nike, Converse, Jordan and Hurley. Umbro and Cole Haan were unable to match up with the performance of other brands thus compelling Nike to take this decision of divestment. The company sold its Umbro brand to the Iconix Brand Group for ~$225 million and its Cole Haan brand to Apax Partners for ~$570 million. These divestiture processes are expected to be completed by the first half of 2013. I think Nike's policy to divest these brands will enhance its bottom line and would be an opportunity for the company to invest in better options.
Expected Growth in China
With their rapidly growing economies and rising disposable incomes, China and other emerging markets like India, Brazil and Korea have emerged as strong growth areas for the company. Even then Nike has experienced slower growth in China with just 8% growth y/y in 1Q13 and to strengthen its competitive position it is expanding with continuous investment in China. Nike has put a lot of effort behind the brand Converse and as a result it has been able to revamp its market successfully for a larger share in China. Converse is priced lower than Nike which makes it a more attractive option in the emerging markets.
Nike is also focusing on the direct-to consumer business model in China with increase in online shopping and on the branded retails outlets. As this model carries higher margins this would be another positive driver for the company's revenue in the long run. The huge demand for branded sports products in China makes it a profitable opportunity for the company to leverage its brand and expand its market share.
To sum up, I think with the rising awareness about Health and Fitness, the sports footwear and apparel market will always have a huge demand. This will benefit Nike with its continuously improving products line along with a market leading position. Looking at its growth factors and an excellent dividend policy, I rate this stock as a buy.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool owns shares of Nike. Motley Fool newsletter services recommend Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!