Motley Fool: Nike sprinting ahead

Nike (NYSE: NKE) combines one of the world’s best-known brands with a highly profitable business model and an industry that sees consistent growth around the globe. Sports have enduring popularity in nearly every corner of the world, and Nike has capitalized on that opportunity more than any other company through clever marketing campaigns, top-notch products and widely admired sponsors like LeBron James and Serena Williams.

Nike’s results are self-evident: The stock has returned about 45,000% since its 1980 initial public offering, and it is up almost 400% over the past decade. It has raised its dividend every year since 2004, usually by more than 10%. Nike’s dividend yield is modest at just 1% today, but so is its payout ratio – barely a third of profits go to quarterly payouts, so the company has plenty of room to continue raising its dividend.

In recent years, Nike has parried challenges from Under Armour and Adidas and continues to put up steady growth. Revenue grew 7% in fiscal 2019, to $39 billion, with net income topping $4 billion. Recent results have revealed accelerating sales in the U.S. market, strong growth in sales to women and a successful app driving sales. Meanwhile, the emerging middle class in places such as China and India bodes well for Nike’s future. (The Motley Fool owns shares of and has recommended Nike.)

Ask the Fool

Q: Is it crazy to borrow against a credit card in order to invest in stocks? – S.G., Santa Maria, California

A: It’s not a good idea, because you’ll likely end up paying more than you earn.

Over many decades, the U.S. stock market has grown by close to 10% per year – but that’s just on average. In some years it has lost more than 20% (though, of course, it also occasionally soars more than 20%), and it can fall or be stagnant for some years.

Meanwhile, the average interest rate charged by credit cards was recently near 18% – and many people, especially those with poor credit records, are being charged much more than that. If you invest in stocks with money borrowed this way, you’re likely to end up deeper in debt in the long run.

Q: How often are companies added to or removed from the Dow Jones Industrial Average? – R.A., Columbus, Ohio

A: Some years see several changes to the index, while many years pass with no changes. For context, note that the Dow began in 1896 with just 12 companies in it, but in 1928, it expanded to the 30 berths it offers today. Companies are added when they gain stature, or removed when they lose importance or cease operations, while the index maintains a mix of industries.

Until 2018, General Electric was the only original component still in the Dow, but it was replaced by Walgreens Boots Alliance that year. In 2015, Apple replaced AT&T. In 2013, Nike, Visa and Goldman Sachs replaced Alcoa, Hewlett-Packard and Bank of America. In 2009, Cisco Systems and Travelers replaced General Motors and Citigroup.

My dumbest investment

My dumbest investment was when I shorted Jack in the Box back in May because Kim Kardashian tweeted negatively about it. – P.S., online

The Fool responds: That was a bit of a weird episode, with Kim Kardashian West tweeting: “Hey, Jack In The Box I have a serious complaint but I won’t fully put you on blast, check your corporate email inbox or send me a DM with direct person for my team to contact. Pronto!”

That was rather vague, but still had an impact, as West’s Twitter account has more than 61 million followers. It’s fine to take any negative comment about a company seriously, as it might point to a serious, and consequential, problem – but it’s best not to act rashly, without more information.

For starters, you should determine what the problem is and whether it appears to be a temporary or lasting one. Many companies have suffered from bad press from celebrities. A major burrito chain, for example, saw its stock drop nearly 6% after a Broadway star blamed it for an illness. A social media site’s stock plunged more than 8% – shedding more than $1 billion in market value – after Kylie Jenner tweeted that she wasn’t using it anymore.

Keep in mind, too, that some celebrities who post glowingly about various products or services may be paid to do so. Invest based on your own research.