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The Motley Fool: Consider Nike and its strong track record

The Motley Fool

The Motley Fool Take

With its relatively low risk profile and a track record of dividend growth, Nike (NYSE: NKE) is a smart growth stock to consider.

The company’s stock price has stagnated amid weak retail sector results, but there’s much to remain optimistic about. Direct-to-consumer selling, an ongoing program to buy back shares and a cost-cutting initiative should give the company some near-term earnings momentum, while its biggest growth drivers will likely come from international markets such as China and Western Europe. In China alone, there are 400 million people active in sports and exercise today, and Nike believes that the Chinese market will eventually expand to become more than 10 times the size of Nike’s North American consumer base.

Nike’s dividend recently yielded 1.2 percent. That might not look like much, but Nike has increased its dividend annually for 16 years and has boosted its payout at an average annual rate of 15 percent over the last five years and 13 percent over the last decade. As it recently paid out just 32 percent of its earnings in dividends, there’s still plenty of room for further substantial increases down the line.

Nike’s time-tested brand and unmatched supply chain network form a defensive moat that should help it capture growth in the apparel industry. It’s worth a closer look for long-term investors. (The Motley Fool owns shares of and has recommended Nike.)

Ask the Fool

Q: What should I do if I don’t have the money to pay my taxes this year? - G.N., Opelika, Alabama

A: First, understand that even if you can’t pay a penny, you need to file your return on time. Failing to do so will result in penalties. So file that return – and pay as much as you can, as that will minimize any penalties or interest charges.

When it comes to an inability to pay, you do have some options, which you can discuss with the IRS itself by calling 800-829-1040. The IRS may be able to offer you a brief extension, a payment installment plan or an “offer in compromise,” where it gives you the chance to settle your obligation by paying less than you originally owed. The IRS may even be able to waive any penalties, though you will still owe any interest accrued.

If you’re thinking of solving your problem by charging your taxes to a credit card, think again if that debt is going to remain unpaid for a long while, racking up interest charges at perhaps 20 percent or more annually. (Credit card service providers will also charge you a “convenience” fee, which can be rather inconvenient.) A bank loan might be better, possibly charging you less than the IRS’ interest and penalties.

Don’t ignore your taxes, as that could lead the IRS to take collection action.

Q: When changing brokerages, can I have my entire portfolio transferred to the new brokerage without having to sell anything and without generating any taxable gains? - T.W., Essexville, Michigan

A: Yup. Your new brokerage will likely be able to help you switch seamlessly. No selling or taxable gains need be involved.

My Dumbest Investment

My dumbest investment was buying into shares of Rite Aid in 2002, right before its former CEO and several other former and current employees were indicted for fraud. - T.F., online

The Fool responds: That was an ugly chapter in Rite Aid’s history, with six former executives pleading guilty or being convicted of financial crimes, and five of them ending up in prison. It also resulted in the company having to restate $1.6 billion in earnings on its financial statement — the largest restatement ever, at the time.

In 1999, Rite Aid briefly topped $50 per share, while a year later, shares traded in the low teens. They were around $2 per share by the time you bought. People often assume that stocks that have crashed can’t fall any further and must be bargains, but Rite Aid is just one example of how that thinking is wrongheaded. Shares did rise and fall, but ultimately dropped to $0.20 per share and recently were near $1.80.

The stock may end up rewarding its believers, but it remains risky. The company has long struggled, carrying a lot of debt, not growing quickly and facing tough competition. It recently sold more than 1,900 stores to Walgreen Boots Alliance for $4.4 billion, which will help it pay off debt. That leaves Rite Aid smaller but stronger, though it still faces challenges - such as Amazon looking to enter the pharmacy market.

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