Nike Inc. (NYSE: NKE) may be among the newest Dow Jones Industrial Average stock, but it is delivering secular growth and a has seen a strong gain in its shares of late. Now the company is delivering everything that shareholders love to hear: raising the dividend, buying back more stock and even splitting its shares.
Seriously, this sounds like an investor wish list that gets sent to Santa this time of the year. Now you know why Merrill Lynch was so positive on Nike.
Nike is delivering a 14% dividend hike for its shareholders. The dividend hike is good, but investors will need to consider that the share price gains have now created the current yield of only 0.9%. Investors will now receive $0.32 per share on a pre-split basis versus the previous pre-split quarterly rate of $0.28 per share. That new yield will generate a yield of about 1% if the stock quits going up.
The company went on to say that this dividend hike will mark the fourteenth year in a row that it has increased its annual dividend. Over that period, the dividend payment each year has increased tenfold.
Nike’s buyback plan is $12 billion with a four-year period to expiration. The company said that the current $8 billion share repurchase program is expected to be completed before the end of fiscal 2016. The new buyback program will commence upon the completion of the current program. on a relative basis, Nike has a market cap of $107 billion.
Nike had approximately 678 million shares of Class B common stock outstanding as of November 16, 2015. The company can purchase shares in the open market or in negotiated transactions, and of course that plan does not obligate the company to buy shares and can be cancelled or abandoned at any time.
The last shareholder gift is a two-for-one stock split. This does nothing to change the fundamentals of course, but investors just love splits. The ongoing attraction about splits is that they allow more investors to get in at a cheaper share price. Again, they do nothing for the fundamentals but they are a mentally gratifying effort. The actual split will be in the form of a 100% stock dividend, and it will be payable on December 23, 2015 to shareholders of record at the close of business December 9.
One thing that needs to be considered about the Nike two-for-one split is that it will lower Nike’s weighting the Dow Jones Industrial Average. The DJIA is a price-weighted index, whereas most other indexes are market cap-weighted. The website IndexArb.com showed that Nike’s weighting was recently 4.74% of the Dow and that it was the sixth largest index component.
Upon completion of the split, Nike’s outstanding shares of Class A and Class B common stock will increase to approximately 353 million and 1.36 billion, respectively. The company also said that its common stock will begin trading to reflect the split on December 24, 2015.
Mark Parker, president and CEO of Nike, said of the company’s efforts:
In a growing sports industry, NIKE is the clear leader. We are built for growth, while also staying committed to creating shareholder value over the long term. We’ve proven it time and again, having returned over $23 billion to shareholders over the last 14 years through share repurchases and dividends. Moving forward, we see even greater potential for NIKE as we continue to unlock new markets, new experiences and new products.
Nike shares were flat on the day at $125.78 in Thursday’s trading, but the stock was up over 3.5% at $130.40 in the after-hours session after this news broke. Its consensus analyst price target is $140.79 and its 52-week range is $90.69 to $133.52.