Dividend Investor Portfolio #13: Sporty Returns


Dear Investor,

Welcome to the 13th edition of TipRanks’ Dividend Investor Portfolio & Newsletter.



Market-Moving News: June 17, 2024

Stocks closed mixed on Friday, as the Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) clinched their fifth consecutive record high. At the same time, the S&P 500 (SPX) and the Dow Jones Industrial Average (DJIA) were slightly lower at the closing bell after a report showed consumer sentiment unexpectedly declined to its weakest level since November 2023. Still, all main indexes except the DJIA clocked in another winning week.

The technology sector’s gains led last week’s rally even as the Federal Reserve dialed back its interest-rate reduction expectations. The Fed is now projecting just one rate cut this year, down from the three that had been previously forecasted in March. Still, market participants were encouraged by the latest economic reports, including consumer and producer inflation metrics that continued to decline, suggesting that the Federal Reserve has the upper hand in its battle with sticky inflation.

In addition, stocks were propped up by positive surprises received from technology majors such as Apple (AAPL), Oracle (ORCL), and Broadcom (AVGO) – the latter two are holdings in the TipRanks Smart Investor Portfolio. However, disappointment with the less dovish-than-hoped-for Fed rate outlook weighed on most S&P 500 sectors, with only IT, Communication Services, and Real Estate ending the week in the green. All major market indexes have seen a significant degradation in market breadth over the past month as gains have been concentrated within large- and mega-cap tech.

Many analysts believe that the Federal Reserve’s policy outlook is leaning conservative. However, should the disinflation trend continue as reflected in the latest CPI and PPI reports – or if the labor market and wage gains cool more than currently anticipated – policymakers may turn more dovish. If economic reports confirm the outlook of normalizing price pressures in the next couple of months, the rate-cut expectations may be brought forward, thus opening the door for improved market conditions.



This Week’s Quality Dividend Stock Idea

DICK’S Sporting Goods, Inc. (DKS) is a retailer operating an omnichannel sporting goods store chain primarily in the U.S. Founded as a fishing goods store in 1948, the company has expanded its offerings and geographical presence throughout the years, both through internal effort and via acquisitions.

Today, with a market capitalization of $17.6 billion, annual revenues of $13 billion, and 857 brick-and-mortar stores in 47 states across the country, DKS is the largest sporting goods retailer in the U.S. and the fourth-largest worldwide, ranking #313 on the Fortune 500 list.


A Wide Range of Products on Multiple Channels

DICK’S offers a wide range of products sold in its physical stores, as well as online platforms and mobile applications. These include sporting goods equipment, fitness equipment, golf equipment, hunting and fishing gear, and apparel and footwear.

The company also operates a variety of specialty and online stores, including Golf Galaxy, Public Lands, Moosejaw, Going, Going, Gone!, DICK’S Sporting Goods Warehouse Sale, and A.D. Starr.

Furthermore, DICK’S offers numerous premium brands including VRST, CALIA, FITNESS GEAR, PRIMED, TopFlite, and more. In addition, the company’s fully-owned subsidiary GameChanger Media offers youth sports mobile apps for scheduling, communications, and live scorekeeping.


Large Addressable Market, Loyal Customers

DICK’S derives 38% of its revenue from hardlines (i.e., gear and equipment), 33% from apparel, and 26% from footwear. The additional 3% is derived from non-merchandise sales categories, including in-store services, shipping, and GameChanger revenues.

The sporting goods market is a multi-billion-dollar industry, with the U.S. addressable market for hardlines, apparel, and footwear estimated at $140 billion in 2023. In 2023, DICK’S increased its market share to 8.5% from 8% in the previous year.

The company has invested in a personalized approach to sales, building a database of millions of active athletes and harnessing its top service and wide offerings to turn them into loyal customers. DICK’S has expanded its loyalty programs, integrating them with its largest vendors such as Nike. In addition, its GameChanger app has boosted the company’s business with high-school and youth sports, adding young athletes to its sticky customer base.


Robust Financials and Strong Sales Growth

DICK’S Sporting Goods boasts stellar financial health. Despite heavy investment in intrinsic growth and acquisitions, with net Capex rising to 4% of sales in 2023, DICK’S has zero net debt (i.e., it has more cash than its total debt). In addition, the company’s net profit margins are in the top 20% of its industry; and so are its capital efficiency and profitability metrics, including ROE, ROA, and ROIC.

DICK’S has registered one of the strongest and fastest bounce-backs from the COVID-19 crisis among U.S. non-food retailers. During its fiscal year 2023, which ended February 3rd, 2024, the company reached a record level of total sales, clocking in a cumulative growth of 48% since 2019. Over this period, gross margins expanded by almost 6%, thanks to the effective leveraging of fixed costs, improved e-commerce profitability, and structurally higher merchandise margins. The increase in the latter has been led by active management of merchandise mix, highly differentiated product assortment, and granular pricing management helped by enhanced data-science capabilities and a shift to personalization and digital marketing.

In the past five years, DICK’S has registered revenue growth at a CAGR of ~10%, while its adjusted EPS rose at a CAGR of ~30%. Fiscal Q1 2024 (which ended May 4th, 2024) extended the positive streak, with the EPS and revenues considerably exceeding analyst expectations. DICK’S reported a 5.3% year-over-year comparable sales growth, driven by growth in transactions and average ticket. The company raised its full-year fiscal 2024 EPS guidance by ~4%.


Fast Dividend Growth Expected to Continue

DICK’S Sporting Goods has been paying dividends since 2011, increasing them annually since 2015. Dividend growth has been fast: in the past decade, annual payouts have increased from $0.52 to $4.40, implying a CAGR of 24%. Despite that, its earnings-based payout ratio of 32% and cash flow-based ratio of 30% are very modest, leaving the company with significant room for additional dividend increases.

Although the company’s current dividend yield of 1.94% may seem low compared to dividend stocks from other industries, it is twice the average for the Consumer Discretionary sector. In addition, DKS’s track record of fast payout increases, coupled with its robust financials and strong sales growth, allow for an outlook of dividends growing at a fast clip for years to come.

The latest dividend hike was announced in March 2024, with the payout rising by 10%. Analysts project that DKS’s dividends will continue rising by 10-12% a year in the next several years.


Buybacks and Strong Stock Performance

Dividends are an integral part of DKS’s capital allocation strategy, which also includes compensating the company’s shareholders through opportunistic share repurchases. Thus, during 2023, DICK’S spent $650 million on buybacks, adding another $144 million of repurchases in fiscal Q1 2024. As of the end of the fiscal first quarter, the company had $665 million remaining under its current share repurchase authorization.

DICK’S Sporting Goods has been publicly traded on NYSE since 2002, but its stock has taken off in earnest after the company showed its remarkable business resilience in the wake of the COVID-19 crisis. In the past 12 months, DKS has risen by ~60%, surging to a record high on May 30th after posting another blockbuster quarter and lifting guidance. However, the stock has given back some of its gains since then, allowing for a more convenient entry point.

As for valuation, DICK’S is difficult to compare as its direct competitors in a similar line of business are much smaller. Still, its valuation comes at the middle of the price range for large-cap stocks in the Specialty Retail industry, and in line with the average for the Consumer Discretionary sector. Based on DKS’s projected cash flows, its shares trade about 35% below the company’s fair value. This leaves additional room for future stock increases despite a significant run-up in the past year.


Investing Takeaway

To conclude, we view DICK’S Sporting Goods as one of the strongest retailers in terms of finances, as well as operational delivery and strategic management. The company’s fast rate of dividend growth, expected to continue in the years to come, makes it an attractive addition to long-term income portfolios.


Dividend Investor Portfolio


Portfolio News

¤ Philip Morris (PM): the company will go Ex-dividend on June 21st, with the payment date on July 8th.

¤ Kroger (KR): the company will report its fiscal Q1 2024 results on June 20th. In other company news, Kroger has announced its entrance into the weight-loss drug market as its revamped weight management program, run by Kroger Health, will now include patient access to GLP-1 treatments.

¤ JPMorgan Chase (JPM) raised its investment banking (IB) revenue forecast for the second quarter of 2024. The company said it expects the IB revenue to surge 25-30% year-on-year, versus the mid-teens expectation published in May. In other company news, JPM announced that it has raised over $500 million for its new VC fund that will invest in biotech companies working on weight-loss drugs.

¤ Amgen (AMGN) is another potential weight-loss market contender, as it expects to receive results from mid-stage trials of its obesity drug MariTide later this year. In May, Phase I clinical trial results indicated that MariTide could provide longer-lasting effects compared to existing GLP-1 treatments


Recent Trades

None at the moment, although we are considering adding a stock to our portfolio when the market conditions allow for an attractive entry point. Stay tuned.


Portfolio Attributes

Dividend Portfolio Yield
Dividend Growth Rate Annual Dividend Income
3.70% 8.36% $3,735.80
Yield-on-Cost Adjusted
 Weighted Growth Equal-Weight 100K Portfolio


Current Portfolio

Name EX-Dividend Date Payment Date Dividend Yield  Annual DPS 
Automatic Data Processing (ADP) Jun 14, 2024 Jul 01, 2024 2.18% $5.60
Allianz SE ADR (ALIZY) May 08, 2025 May 13, 2025 5.25% $1.50
Amgen (AMGN) Aug 16, 2024 Sep 06, 2024 3.23% $9.00
BlackRock (BLK) Jun 07, 2024 Jun 23, 2024 2.68% $20.40
Edison International (EIX) Jul 01, 2024 Jul 28, 2024 4.29% $3.12
JPMorgan Chase (JPM) Jul 05, 2024 Jul 31, 2024 2.20% $4.60
Kroger (KR) May 14, 2024 Jun 01, 2024 2.02% $1.16
LyondellBasell (LYB) Aug 30, 2024 Sep 05, 2024 5.07% $5.36
Philip Morris (PM) Jun 21, 2024 Jul 08, 2024 5.82% $5.20
Qualcomm (QCOM) May 30, 2024 Jun 20, 2024 2.03% $3.40



Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman



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