How to Evaluate the NKE Stock Payout as the Nike Turnaround Drags On
Nike swoosh on building by Wu Yi via Unsplash Sneaker giant Nike (NKE) hasn’t historically been known for dividends, which isn’t surprising, as the company describes itself as a “growth company.” However, after a 77% drawdown in NKE from its November 2021 highs, the stock’s dividend yield has risen to 4%, near its all-time high.…
Sneaker giant Nike (NKE) hasn’t historically been known for dividends, which isn’t surprising, as the company describes itself as a “growth company.” However, after a 77% drawdown in NKE from its November 2021 highs, the stock’s dividend yield has risen to 4%, near its all-time high.
Nike has raised its dividends for 24 years, and if it raises the dividend later this year, it would join the elite club of Dividend Aristocrats, which are companies that have raised dividends for 25 consecutive years. Meanwhile, Nike is facing some serious headwinds, which are reflected in its price action, with the stock closing in the red for four consecutive years. NKE stock is trading near its lowest level in 12 years, and even the fat dividend yield provides little succor given the massive capital erosion.
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It is not unusual for companies to slash/suspend their dividends amid financial woes, as it helps preserve cash and bolster the balance sheet. Let’s look closer at whether Nike’s dividend is safe or at risk of being cut.
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Nike’s Dividend Payout Ratio Is Quite High
In fiscal year 2026, Nike spent $2.4 billion on dividends and $123 million on share repurchases. In comparison, its net income was $3.1 billion. While the equation does not look troubling, it is important to note that Nike accounted for the expected recovery of International Emergency Economic Powers Act (IEEPA) tariffs of almost $1 billion in the fiscal fourth quarter. That would be a non-recurring source of income, which basically implies the company’s dividend payout was more than its adjusted net income.
Nike ended the fiscal year with a cash pile of $9 billion, which was $0.1 billion lower than the corresponding period last year, as although it received $300 million in cash from IEEPA tariff refunds, its operating cash flows were not sufficient to cover dividends and capex.
In fiscal year 2025, Nike shelled out $2.3 billion on dividends while generating net income of $3.2 billion. Its cash holdings fell by around $2.4 billion that year as shareholder payouts, capex, and bond repayments exceeded its operating free cash flows.
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Notably, Nike has also lowered its share repurchases over the last couple of years, as it is not left with much cash after paying dividends. While repurchases would have made sense at these levels, the company does not have the legroom to buy back shares given the current financial situation.
Is Nike’s Dividend Safe?
The financial metrics would tell us that Nike’s dividends are not sustainable unless the company’s earnings and cash flows improve. Analysts are modeling Nike’s earnings to rise 10% in the current fiscal year, and if the company raises its dividends in low single digits as was the case last year, the payout ratio would be precariously close to 100%. However, the company’s free cash flows are expected to improve this fiscal year as it progresses with cutting back on its bloated inventory. Moreover, it should be able to realize more IEEPA tariff windfalls this fiscal year, which would buoy its free cash flows.
However, Nike’s earnings and cash flows need to rise materially from these levels to support the current shareholder payouts. While analysts expect the company’s earnings to rise 35% in the next fiscal year, these are just estimates, and Nike needs to deliver on the turnaround, which is taking painfully long.
Nike management is optimistic about expanding its gross margin from the current quarter, but the company has to return to topline growth, something it does not expect at least in the first half of this fiscal year, and has forecasted sales to fall in “low to mid-single digits” during the period.
I don’t expect Nike to lower its dividend this year since it tends to send a bearish signal to the market and would put a question mark on the turnaround. However, I don’t rule out the possibility of an activist investor pushing the company to lower the dividends and instead use cash to repurchase shares. To sum it up, I believe Nike investors can expect a dividend hike later this year, but unless we start to see the turnaround actions having a positive impact on the earnings and cash flows, at some point a dividend cut might be on the table.
On the date of publication, Mohit Oberoi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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