Nike‘S (NKE +2.44%) The iconic global brand is not delivering the steady growth that investors are accustomed to. The stock has been on a decline since hitting all-time highs during the COVID-19 pandemic and is down 32% year to date.
This discount has brought the dividend yield to 3.7%, which is more than three times S&P 500 average. Is this produce too good to pass up? Let’s assess the health of Nike’s dividend payout before determining whether it’s the smartest dividend stock to buy in 2026.
Image source: The Motley Fool.
Dividend coverage is weakening
Nike is still dealing with challenging macroeconomic headwinds, including inflation and higher energy prices, which are hurting consumer spending. It reported flat revenue for fiscal 2026, which ended in May, with fourth-quarter revenue down 1% year over year.
Nike’s trailing 12-month free cash flow declined 65% year over year to just over $1 billion due to weak top-line growth and investments to turn things around. This does not leave enough room for dividends. The company paid out about $2.4 billion in total dividends to shareholders last year.
Last year, Nike earned net income of $3.1 billion. With more than $7.5 billion in cash on the balance sheet, a dividend cut is unlikely. Nevertheless, the elevated payout ratio to free cash flow increases this risk for investors unless there is a solid improvement in profitability.
The good news is that management has made progress in consolidating inventory to better manage costs. It is prioritizing margins rather than maximizing near-term revenue growth, with gross margins expected to improve from this quarter.
today’s change
(2.44%) $1.05
current price
$44.11
key data points
market cap
$65B
day limit
$43.60 -$45.03
52wk range
$40.00 -$80.17
volume
748
average volume
24.5m
gross margin
44.06%
dividend yield
3.70%
Nike’s transformation will take time
Nike Sportswear and Jordan Streetwear remain weak, and together they account for about half of Nike’s total revenue. The only bright spot appears to be on the upside, which has delivered five consecutive quarters of double-digit growth.
Management is actively working to reduce discounts to expand margins and adjust its product mix to drive sales growth. Over 150 stores have refreshed their catalog with performance-based products, which are seeing higher demand than lifestyle products. Nike is also introducing a dozen new footwear styles later this year. However, management expects that these efforts will take time to produce consistent results.
The turnaround is progressing, but perhaps not as quickly as Wall Street had hoped. Management is confident about its actions to improve margins. Still, the increased dividend payout versus free cash flow doesn’t make the stock the safest choice for income investors.
I wouldn’t call Nike the “smartest” dividend stock To buy now. There are more sustainable consumer brands, such as coca colaThose that provide high yields but do not carry the execution risk associated with a large change effort. investors who buy Nike shares You’ll need to take a close look at its quarterly earnings to make sure the company is on track to recover margins and free cash flow, which is key to maintaining and growing the dividend.