We recently published a list of 10 Stocks That Are Close To Becoming Dividend Aristocrats. In this article, we are going to take a look at where NIKE, Inc. (NYSE:NKE) stands against the other stocks that are close to becoming dividend aristocrats.
Income investors are drawn to Dividend Aristocrats because these stocks have consistently increased their dividends for decades. However, it’s possible to achieve even better returns by investing in stocks that are on the path to becoming Aristocrats—those that are increasing payouts but haven’t yet reached the 25-year mark required to qualify. This is where the real potential for wealth lies. The downside of some Aristocrats is that their most rewarding growth years may be behind them. Once a company reaches a certain level of dividend stability, its payout ratios can become inflated, and dividend hikes may slow, often limited to modest profit growth.
That said, dividend aristocrats are special. Among the approximately 6,000 stocks listed on the NYSE and NASDAQ, only around 67 companies have earned the distinction of being Dividend Aristocrats. These stocks have consistently outperformed other asset classes over time. Since the inception of the Dividend Aristocrats Index in 2005 through September 2023, it has delivered a total return of 10.35%, outperforming the broader market, which returned 9.54% during the same period.
READ ALSO: Dividend Aristocrats: Top 7 Companies by Yield for November 2024
In recent years, dividend investing has become an increasingly popular strategy, largely due to periods of heightened market volatility. The annual dividend payouts from the broader market have been on the rise, growing from $420 billion in 2017 to $522 billion in 2021. By 2023, these payments reached a record high of $588.2 billion. This trend demonstrates that investing in dividend stocks offers the potential for long-term growth and income generation. In addition, dividends have played a key role in overall market returns. From 2013 to 2022, dividends contributed around 17% of the total return of the broader market, according to a Morgan Stanley report.
While growth tech stocks have been in the spotlight this year, dividend stocks still have the potential to outperform as companies keep raising their payouts. Analysts remain optimistic about the continued growth of dividend stocks. Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, made the following comment in this regard:
“Given the FOMC’s interest rate reduction start and record earnings for Q2, and projected record earnings for both Q3 and Q4, companies may be more at ease to commit funds to larger dividend increases. The notable conclusion is that many companies have the ability and cash-flow to increase their dividend payments, but remain concerned over the economy, government spending and taxing policy.”
Analysts support dividend stocks due to their long-term growth potential. When discussing dividend stocks from this aspect, reinvesting dividends is a key strategy for compounding returns over time. From 1978 to 2020, dividends and their reinvestment contributed to 69% of the market’s total returns. This means that a $10,000 investment, with dividends reinvested consistently, would have grown to more than $1.2 million during this period. Given investors’ preference for dividend stocks, many companies have implemented dividend policies and are consistently increasing their payouts with the goal of achieving 25 years of dividend growth.
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Our Methodology
For this list, we selected companies from the S&P 500 that have raised their dividends for 18 years or more and are on the steady path to becoming dividend aristocrats. These companies would be achieving their dividend aristocrat status in seven years or less. The stocks are ranked in ascending order of their consecutive years of dividend growth. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 900 as of Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
NIKE, Inc. (NYSE:NKE)
Consecutive Years of Dividend Growth: 23 Years
NIKE, Inc. (NYSE:NKE) is a multinational footwear and apparel company that offers products for men, women, and children. The company faced some difficulties in recent years but is working to overcome them with fresh strategies. It has appointed a new CEO, bringing back Elliott Hill, a longtime company veteran who retired in 2020 as president of global commercial and marketing operations. This change provides the company with an opportunity to reset its approach, under the guidance of a seasoned insider with a proven record of success.
Coho Partners also highlighted this transformation in its Q2 2024 investor letter. Here is what the firm has to say:
“While we believe each of those companies is performing in line with or better than our expectations and that the moves lower are unjustified, both CVS and NIKE, Inc. (NYSE:NKE) reported disappointing performance in recent results. For Nike, the company reported mixed fourth quarter Fiscal 2024 results and weak Fiscal 2025 guidance, reflecting top line pressure from lifestyle product slowing, lower digital sales and increased macro headwinds in international markets. To manage through the decline in sports footwear and apparel demand, the senior leadership team is focused on cutting costs and reinvesting in marketing and innovation to drive sales. The company is starting to see green shoots for performance product innovation and has historically emerged stronger from these downturns due to benefits from a leading market position and scale.”
NIKE, Inc. (NYSE:NKE) reported mixed earnings in fiscal Q1 2025. The company’s revenue of $11.6 billion fell by 10% from the same period last year. Its wholesale revenues also declined by 8% on a YoY basis at $6.4 billion. However, the company’s cash position remained stable, with nearly $8.5 billion available in cash and cash equivalents, up from $6.2 billion in the prior-year period. Its trailing twelve-month operating cash flow stands at $7.9 billion.
NIKE, Inc. (NYSE:NKE) declared an 8.1% hike in its quarterly dividend to $0.40 per share on November 15. Through this increase, the company stretched its dividend growth streak to 23 years. The stock supports a dividend yield of 2.03%, as of December 2.
NIKE, Inc. (NYSE:NKE) remained popular among elite money managers at the end of Q3 2024 with 75 hedge funds owning positions in the company, as per Insider Monkey’s database. The stakes owned by these funds have a collective value of more than $5 billion. Bill Ackman’s Pershing Square was the company’s leading stakeholder in Q3.
Overall, NKE ranks 2nd on our list of the stocks that are close to becoming dividend aristocrats. While we acknowledge the potential for NKE to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NKE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
