Nike:(NYSE: NE) announced the results of the second quarter of the fiscal year 2025 on December 19, exceeding the upper and lower grades (although expectations were very low.) However, the stock fell slightly on Dec. 20, despite a 1.1% gain S&P 500: as investors digested Nike’s guidance and timing of its recovery.
The company has raised its dividend for 23 consecutive years and currently has a 2.1% yield, making it an intriguing option for passive income investors who believe in its turnaround story.Here’s what you need to know about Nike and whether dividend stock worth buying now.
Image source: Getty Images.
Nike shares are up just under 20% in the past nine years, despite the S&P 500’s 196% gain.
The company has faced several challenges, the biggest of which is its distribution model. In 2017, it decided to grow its direct-to-consumer (DTC) business under the Nike Direct label to become less dependent on wholesalers, which act as middlemen between consumers and Nike. :
The strategy had the potential to increase Nike’s margins, build direct-to-consumer relationships, and improve the effectiveness of its ads. The company could better tailor its marketing efforts by gaining more insight into shopper behavior and preferences might like” tip.
In addition to expanding DTC through Nike Direct, the company also wanted to grow its apparel business to become less dependent on footwear.Finally, Nike made a big push internationally, particularly into China.
In retrospect, none of these ideas were particularly bad, they just left the company overextended and vulnerable to a slowdown. Nike Direct did decently well, but it hurt the company’s wholesale business, not just Nike. the
The company faces increasingly strong competition Lululemon Athletica and others on the clothing side, and Deckers Outdoor– belongs to Hoka and On the holding mainly on footwear (although these brands also offer apparel.) These DTC native companies do not have a legacy of wholesale dependence, making them arguably more flexible than Nike.
Sales were down in its geographic areas of footwear and apparel, as well as in wholesale.So the overall business has not provided a delay.Management is forecasting a weak second half of its fiscal year is product prices to reduce inventories and strengthen its product pipeline.
Its new chief executive, Elliott Hill, has said he hopes to “return Nike to victory” by focusing more on its footwear roots, while margins are likely to take a hit from reduced inventory.
The main takeaway from last quarter and earnings commentary was that the company’s turnaround will take longer than expected and near-term results will be weak.There is also the possibility that the turnaround will be further delayed if interest rates remain high for longer.
Comments from the Federal Reserve on Dec. 18 indicated it may slow the pace of rate cuts, which could limit consumer spending on discretionary goods.
As you can see in the chart, Nike’s sales are falling from record highs and its operating margins are at their lowest levels in a decade (barring the brief downturn caused by the pandemic). is not positioned to meet these potential challenges.
The stock is probably worth buying, but only if you’re willing to hold it for at least five years. high interest rates and tariffs may compound his woes.
Undeniably, the further the stock falls, the more attractive it becomes for long-term investors look very cheap after it works through its inventory cuts.Seeing Nike’s successful turnaround in a few years won’t be surprising, especially if China recovers.
The dividend is an incentive to hold the stock during this period.The 2.1% yield is higher than the 1.2% average for the S&P 500. It’s also worth noting that while Nike’s business isn’t doing very well, it has managed to raise its dividend significantly in recent years.
The last five annual increases have been 8%, 9%, 11% and 12%.
Overall, investors who are confident in the brand and don’t mind waiting for a turnaround can consider buying the stock now and collecting passive income. But people who are skeptical may want to keep Nike on the watch list and see how the company responds to potential challenges.
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Daniel Felber has positions in Nike and has the following options: long January 2025 calls in The Motley Fool has positions in and recommends Deckers Outdoor, The Motley Fool advises On Holding The Spotted Fool has a disclosure policy.
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