Facebook
Twitter
Athletic apparel giant Nike (NYSE: NKE) is the best-performing stock in the Dow Jones Industrial Average year-to-date.
Shares of Nike are up 27% just since the beginning of 2015, while the Dow is down 10% in that time. That includes a 9% rally on Friday after the company reported better-than-expected fiscal first-quarter 2016 earnings.
Nike has outperformed the Dow by a whopping 37 percentage points this year, as the company continues to produce solid growth thanks to its world-class brand. Here’s why Nike is the top Dow stock of the year thus far.
Nike Brand Leads the Way
Nike is the leading brand in its industry, which helps the company produce growth even in a challenging environment. Last quarter, it grew revenue and earnings per share by 5% and 23%, respectively, year-over-year.
Excluding the effects of foreign exchange, the results were even better. Currency-neutral revenue would have grown 14%. Earnings were boosted by revenue growth as well as margin expansion. Gross margin expanded 90 basis points to 47.5% last quarter.
Nike’s quarterly performance built on top of a highly successful fiscal 2015. In the last fiscal year, it grew revenue 10% to $30 billion. Earnings per share soared 25% in that time.
Nike is reaping the rewards of significant investments made in several key strategic growth initiatives over the past several years. One of these is Nike’s booming e-commerce business, which grew constant-currency revenue by 46% last quarter. The company saw robust e-commerce growth across all of its geographic markets, with strong conversion and increased mobile traffic.
Another major business Nike has built up is its women’s line, which is rapidly becoming every bit as important as its men’s line. In fact, the women’s business grew by double-digits last quarter. Nike offers some popular women’s products, including apparel styles such as the Dri-FIT knit bras and Nike pro tights, both of which are selling well.
And it’s likely that Nike’s success will continue over the remainder of the current fiscal year, because its forward-looking metrics look promising. Worldwide futures orders, a key gauge of future demand, were up 9%, or 17% excluding foreign exchange. This will help boost revenue and earnings growth even more in future quarters, as Nike has some important events coming up over the next several months, including the Super Bowl, the NBA All-Star weekend, the UEFA European Championship and the Rio Olympics. Each of these events could be a catalyst for Nike going forward.
Impressive Growth and Cash Returns
Nike generates a lot of free cash flow, and it is not shy about returning a lot of that cash to investors. The company does so in two ways: share repurchases and dividends. Nike repurchased a total of 5.5 million shares for approximately $588 million last quarter, as part of the four-year, $8 billion program previously approved by its board of directors.
In addition, Nike pays investors a nearly 1% dividend. Since Nike is generating such strong growth, it has been able to grow its dividend at a nice clip. Over the past five years, Nike has increased its dividend by 15% per year.
Nike has performed extremely well this year, thanks to its brand strength and product innovation. Although it’s not the cheapest stock at 30 times earnings, it’s growing revenue and earnings at impressive rates.
You Could Retire on Just These Three Stocks
Ian Wyatt has found 3 stocks that pay dividends so big — you can retire on them. The Wall Street Journalcalls them, “mega-dividends.” These stocks have a history of consistently RAISING their dividends… quarter after quarter. In fact, one of these cash-cranking companies hiked its dividend 10-fold! So, if these ever-increasing payouts sound good to you… Click here for all the details.