Dividend Increase | Nike (NKE) Rollover IRA

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Nike for the dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On November 14th the Board of Directors at Nike (NKE) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.22 up to $0.245 per share.  That's an excellent 11.4% raise!  Nike is a Dividend Contender with 17 consecutive years of dividend increases.  Shares currently yield 1.05% based on the new annualized payout.

The newly increased dividend will be payable on January 2nd to shareholders of record as of December 2nd.

Since I own 101.567 shares of Nike in my Rollover IRA, this raise increased my forward 12-month dividends by $10.16.  

A full screen version of this chart can be found here.

VF Corporation has a rich history of raising their dividends as evidenced by their 46 year streak.  While it appears that there was a cut recently that was actually due to the spin-off of Kontoor Brands (KTB).  What's really impressive is that despite the decrease, VF Corporation will still pay out more in 2019 than in 2018.

Of the 17 1-year periods starting in 2002, Nike's annual dividend growth has ranged from 8.0% to 42.9%.  The average increase has been 17.4% with a median of 16.1%.

There are 15 rolling 3-year periods in Nike's dividend growth streak and annualized dividend growth has ranged from 10.5% to 30.4% with an average of 17.2% and a median of 15.7%.

Of the 13 rolling 5-year periods, annualized dividend growth has ranged from 12.8% to 26.9% with an average of 16.7% and a median of 14.9%.

It's pretty amazing that this 11.4% increase comes in one the lower side of what Nike has traditionally raised it.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 2002 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Nike's 5-year average forward dividend yield is 1.14% which corresponds with a share price of $85.96 based on the newly raised dividend.  

I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%.  That gives a fair value range of $78 - $96 which suggests shares are currently trading towards the upper end of fair value.

Analysts expect Nike to have earnings of $2.97 for FY 2020 ending May 31, 2029, and $3.45 for FY 2021.  The current price of $91.27 has shares valued at 30.7x and 26.5x forecasts, respectively.  Using the EV/EBITDA shares look quite expensive at 25.6x.

The return from an investment is comprised of 3 parts: growth in earnings + dividend yield + changes to valuation.  Before accounting for valuation changes, Nike could potentially produce 17.5% annualized returns; although the question right now is whether valuation changes are going to be a head or tail wind on future returns.  

Wrap Up

This raise increased my forward dividends by $10.16 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my Rollover IRA's current yield of 2.20% this raise is like I invested an extra $460 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

My FI Portfolio's forward-12 month dividends are $7,731.05.  Including my FolioFirst portfolio's forward dividends of $101.12 brings my total taxable accounts dividends to $7,832.17.  My Roth IRA's forward 12-month dividends are $626.73.  My Rollover IRA's forward dividends increased to $2,327.16.  Across all accounts I can expect to receive $10,786.06 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Nike's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Nike?  How has dividend growth for you holdings fared in 2019?

Please share your thoughts below.