No matter what happens in the stock market, it’s always comforting to own shares of companies that pay growing dividends to shareholders. Let’s take a look at two market leaders that are trading well above their highs and offering their highest returns in a long time.
1. Nike
Nike (NYSE:NKE) recently announced that corporate veteran Elliott Hill will take over as president and CEO effective October 14. The change in leadership comes amid weak revenue performance this year, which has sent the stock down 51% from its previous all-time high. Hill’s hiring is seen as a positive catalyst for the brand’s turnaround, with the stock up 7% since the announcement.
Hill previously served as Nike’s President of Consumer and Marketplace, where he played a critical role in helping Nike expand its business globally. While investors won’t know the specific strategy Hill will implement until he is in office, Nike’s decision to hire a former company executive could be exactly what is needed to turn things around.
Nike’s sales fell 2% year-over-year in the most recent quarter, but there were positive signs showing how Nike can pull out of the slump. Management noted that core categories such as basketball and fitness showed growth in the quarter, but this was offset by weakness in lifestyle products and the Jordan brand. This shows that Nike can perform much better if management invests more in its performance products, where there is ample opportunity to grow in a $300 billion sportswear market.
Nike has paid a growing dividend for 22 years in a row, paying out 38% of its profits last year. This brings the stock’s future dividend yield to 1.70% – higher than the 1.26% S&P500 average. Investors can expect the new CEO to implement an effective strategy to improve performance. This time next year, the stock should be trading higher.
2.UPS
UPS (NYSE:UPS) has been paying dividends to shareholders for 25 years, reflecting many years of solid financial performance. But the company has struggled to grow sales as customers switch to cheaper shipping options. With the stock down 45% from its previous peak, investors can get the stock at a historically high dividend yield.
Wall Street has low expectations for UPS. Sales fell slightly in the second quarter, and lower margins contributed to a 30% year-over-year decline in operating profit. But these results are already priced into the shares. If you buy the stock for the dividend, the most important thing is the prospects. Management expects to generate $5.8 billion in free cash flow for the full year, which is expected to fund a planned dividend payment of $5.4 billion.
The current quarterly dividend is $1.63 per share, which puts the stock’s future dividend yield at 5.05%. That is very attractive for a leading global shipper. While there’s always a chance the dividend could be cut if business conditions deteriorate, that seems unlikely based on management’s free cash flow guidance and the company’s recent recovery in volume growth.
UPS reported an increase in U.S. volume last quarter – the first quarter of volume growth in more than two years. Management has attributed this improvement to new e-commerce customers joining the UPS network, highlighting a long-term opportunity for the company. It also continues to invest in the future with the planned acquisition of Estafeta, a leading small package company in Mexico. This is a strategic move by UPS to position itself for growth as more customers move distribution closer to the US
Buying shares of leading companies when they are experiencing temporary growing pains can lead to excellent returns. Nike and UPS are well-entrenched companies that will be around for many years to come and pay dividends to investors.
Should You Invest $1,000 in Nike Right Now?
Consider the following before buying shares in Nike:
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John Ballard has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Nike. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.
2 Dividend Stocks Down More Than 40% to Buy Before a Rebound was originally published by The Motley Fool
