It looks like $Nike (NKE.US)$ is about to go ex-dividend in the next 4 days.  The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend.  It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date.   Thus, you can purchase NIKE's shares before the 2nd of December in order to receive the dividend, which the company will pay on the 28th of December.

The company's upcoming dividend is US$0.34 a share, following on from the last 12 months, when the company distributed a total of US$1.22 per share to shareholders.  Last year's total dividend payments show that NIKE has a trailing yield of 1.3% on the current share price of $105.96.    Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid.  So we need to investigate whether NIKE can afford its dividend, and if the dividend could grow.

Check out our latest analysis for NIKE

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut.   That's why it's good to see NIKE paying out a modest 34% of its earnings.     That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow.     It paid out more than half (52%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:NKE Historic Dividend November 27th 2022

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share.   If earnings fall far enough, the company could be forced to cut its dividend.     With that in mind, we're encouraged by the steady growth at NIKE, with earnings per share up 7.1% on average over the last five years.        While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders.  If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth.     In the last 10 years, NIKE has lifted its dividend by approximately 14% a year on average.      It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Has NIKE got what it takes to maintain its dividend payments?      Earnings per share growth has been modest, and it's interesting that NIKE is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends.        All things considered, we are not particularly enthused about NIKE from a dividend perspective.

Curious what other investors think of NIKE? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.