As a blue chip company with an above-average dividend, Nike has earned the right to have investors’ patience.
Despite having its logo plastered all over Olympic uniforms, commercials and marketing that are legendary, and shoes that are worn by millions, all hasn’t been well at Nike (NKE -1.76%). So far this year, the stock is down over 24%. Thankfully, the dominant sportswear maker has something to offer investors to help keep them patient during this rough period: an above-average dividend of about 1.8%.
That alone doesn’t wipe out its stock price woes, but it definitely helps. For long-term investors looking for a dividend stock they can hold on to for the long haul, Nike is an intriguing choice at its current valuation.
When in doubt, lean on the brand
Nike’s stock may not be doing well, but it hasn’t translated to a deterioration of its brand. Few brands in the fashion and apparel world are as iconic as Nike. Even fewer — if any — can compete with Nike’s brand strength when it comes to shoes. Whether for sports, casual, or lifestyle, Nike has spent decades being the go-to brand.
A world-class brand can be a life vest when a company is going through a rough patch. It provides customer loyalty and pricing power to help keep its financials healthy. That’s partly why Nike’s revenue numbers continue to remain strong.
In its fiscal 2024 (ended May 31), Nike made $51.4 billion in revenue. It was only up 1% year over year, but it was more than Adidas, Puma, Under Armour, Skechers, and Deckers Outdoor (maker of UGG and Hoka) — combined.
NKE Revenue (Annual) data by YCharts
Nike is realizing the importance of wholesale
With the growth of online orders and the popularity of its app, SNKRS, Nike assumed its direct-to-consumer (D2C) business would be able to hold enough weight to lead the company forward. This led it to cut ties with many major retailers, which was a huge misstep in retrospect.
Wholesale sales dropped from the terminated partnerships, and D2C sales growth wasn’t nearly enough to make up for it. In true “that was a huge mistake, please forgive us” fashion, Nike has made efforts to rekindle some of these wholesale/retail partners.
It announced in spring 2021 that it would end its partnership with companies such as Macy’s, Designer Brands (DSW), Urban Outfitters, and a handful of others, and by fall 2023, it had reversed course. I’m sure it wasn’t easy to admit making a misguided business move, but better late than never to own up to the mistake.
Since re-establishing many of these relationships, Nike’s wholesale business has been given new life. In its latest quarter, wholesale revenue increased 8% year over year to $7.1 billion (5% if you consider the impact of currency exchanges).
Nike spent the past few years caring too much about where its shoes were sold instead of focusing on maximizing every channel possible. It’s encouraging to see this could be changing, though.
Its valuation gives it a lot of upside
If you’ve been a Nike investor for a while, this recent slump could be enough to keep you up at night; it has shed over half of its value since November 2021. If you’re considering becoming a Nike investor, now presents one of the better opportunities we’ve seen in a while.
Around three years ago, Nike’s price-to-earnings (P/E) ratio spent time in the 80s. Recently, it has been in the low 20s, well below its average over the past decade.
NKE PE Ratio data by YCharts
A low P/E ratio alone doesn’t make Nike a must-have, but it gives you a chance to invest in it with fewer of the risks that come with investing in stocks priced at a premium.
Add in Nike’s above-average dividend, healthy balance sheet, and the power its brand commands, and it becomes much easier to sit back and trust that it’ll eventually get back on the right path. If you’re looking to buy and hold Nike stock for the long haul (which you should), the upside seems to far outweigh the downside.
Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike and Skechers U.s.a. The Motley Fool recommends Designer Brands and Under Armour. The Motley Fool has a disclosure policy.