Key Points
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Nike is still navigating challenges in growing sales, with revenue down 1% year over year last quarter.
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Over the last year, Nike paid out significantly more in dividends than it generated in free cash flow.
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Recent actions to improve margins should begin to take hold in the near term.
- 10 stocks we like better than Nike ›
Nike‘s (NYSE: NKE) iconic global brand is not delivering the steady growth investors are used to. The stock has been in a downward spiral since hitting an all-time high during the COVID-19 pandemic and has fallen another 32% year to date.
The discount has brought the dividend yield up to 3.7%, more than three times the S&P 500 average. Is this yield too good to pass up? Let’s first assess Nike’s dividend payout health before determining whether this is the smartest dividend stock to buy in 2026.
Dividend coverage is weakening
Nike is still navigating 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.
The weak top-line growth and investments to turn things around have caused Nike’s trailing-12-month free cash flow to plummet 65% year over year to just over $1 billion. This doesn’t leave enough room for the dividend. The company paid out nearly $2.4 billion in total dividends to shareholders over the last year.
Nike generated $3.1 billion in net income over the last year. With over $7.5 billion in cash on the balance sheet, the dividend is unlikely to be cut. Still, the elevated payout ratio to free cash flow raises this risk for investors unless there is a material recovery in profitability.
The good news is that management has made progress in tightening inventory to better manage costs. It is prioritizing margins over maximizing near-term revenue growth, with gross margin expected to improve starting this quarter.
Nike’s turnaround will take time
Nike sportswear and Jordan streetwear remain weak, and together account for about half of Nike’s total revenue. The only bright spot appears to be running, which has delivered five consecutive quarters of double-digit growth.
Management is actively working to reduce discounting to boost margins and adjust its product mix to drive sales growth. Over 150 stores have refreshed their inventory with performance-based products, which are seeing stronger demand than lifestyle products. Nike is also introducing a dozen new footwear styles later this year. However, management expects these efforts to take time to generate consistent results.
The turnaround is progressing, but probably not as quickly as Wall Street anticipated. Management is confident in its actions to improve margins. Still, the elevated dividend payout to 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 right now. There are more durable consumer brands, such as Coca-Cola, that offer high yields but don’t carry the execution risk associated with a major turnaround effort. Investors who buy Nike shares will need to closely monitor its quarterly earnings to ensure the company is on track to recover margins and free cash flow, which is crucial for sustaining and growing the dividend.
Should you buy stock in Nike right now?
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool has a disclosure policy.
