Is the Turnaround Dividend Stock, which has observed an approximate increase of 20% in a month, still a worthwhile investment option in July?
In a significant turnaround, sportswear giant Nike has shown promising signs of recovery, with its dividends growing at a compound annual growth rate (CAGR) of 10.3% over the last five years. The company's strategic and operational changes have positioned it for potential growth in the medium to long term.
One of the key elements of Nike's turnaround is its focus on inventory management and product focus. By addressing the challenge of inventory overhang, particularly from overstocked sneaker lines like Air Force 1 and Dunk, and implementing a "Win Now" strategy that trims product lines to focus on core categories such as running and basketball, Nike aims to better align supply with demand. This more disciplined approach is crucial for margin improvement and profit stability.
Nike's gross margin declined to 40.3% in fiscal Q4 2025 due to tariffs and clearance discounts, but management expects margin pressures to moderate in fiscal 2026. The company is taking steps to stabilize margins, including surgical price increases in the U.S., diversifying manufacturing away from China, and optimizing the sourcing mix.
Central to the turnaround is reigniting brand momentum through product innovation and marketing focused on athletes. Despite losing some ground in categories like running to competitors with more advanced technical offerings, Nike is investing to regain leadership with fresh product pipelines and marketing campaigns that emphasise sport.
The wholesale business is also experiencing a positive turnaround, contributing to stabilised retail metrics. Nike's supply chain agility is a critical asset that supports its ability to respond quickly to market changes and consumer trends, supporting resilient long-term growth prospects.
Nike's stock trades at almost the mean target price of $76.63, and the company's dividend yield is well ahead of the 1.3% that an average S&P 500 Index constituent pays. Nike has increased its dividends for 23 consecutive years, and in December 2024, it increased its quarterly dividend by 8% to $0.40.
However, China remains a structural headwind for Nike, as Chinese consumers have increasingly been preferring domestic brands against U.S. rivals. Despite this challenge, Nike's stock might fit into portfolios of dividend investors who crave a mix of both dividend growth and capital appreciation over the medium to long term.
Over the last couple of quarters, turnaround-related costs have been a headwind, but the company expects the pressure on the top line and margins to start moderating. Nike has a consensus rating of "Moderate Buy" from the 36 analysts covering the stock, with the Street-high target price of Nike's stock being 56.8% higher than the July 7 closing price.
In a positive development, Nike has reversed its policy and has started selling on Amazon(AMZN) after quitting the e-commerce platform in 2019. Over the last two weeks, Nike has earned upgrades from HSBC and Argus. Nike's CFO Matt Friend stated that the fiscal Q4 2025 earnings call reflected the largest financial impact from its Win Now turnaround plan.
With a two-pronged strategy where it intends to use its direct channel for premium products, which will be higher-margin, Nike is poised for a medium- to long-term recovery that could reward investors through both rising dividends and stock price appreciation.
In the context of Nike's notable turnaround, the company is demonstrating a dedication to financial growth by focusing on key business areas such as inventory management and product focus, which aim to improve margins and profit stability. Additionally, Nike is increasing its investments in product innovation and marketing, with a focus on athletes, to reclaim its leadership in certain categories and reignite brand momentum.
