Week #9NKE
Stock of the Week #9 — Nike (NKE)
88Five-box test: ✓ Pays · ✓ Raises · ✓ Safe · ✓ Undervalued · ✓ Yield that matters
Week nine, another $100, and this week we're buying a company whose logo is on half the sneakers in your house.
So far we've owned a rural retailer (Tractor Supply), a medical-device maker (Medtronic), a landlord (Realty Income), a utility (NextEra), a snack giant (PepsiCo), the payroll company (ADP), a home-improvement King (Lowe's), and an asset manager (T. Rowe Price). This week we buy Nike (NKE), the biggest athletic brand in the world, at a price it hasn't seen in years.
Why Nike
Nike is a 25-year Dividend Aristocrat (and has paid without a cut for 38 years). More than that, it owns one of the widest "moats" in all of consumer goods: the brand itself. People pay a premium for the swoosh, and they have for decades. That pricing power is what makes it a business worth owning for the long haul.
So why is it this cheap? Because Nike is in a genuine slump. It leaned too hard on selling direct, under-invested in new product, damaged some of its store relationships, and lost ground in China to newer rivals. Sales have fallen and profits with them. The market looked at all that and marked the stock down hard, from around $180 a few years ago to about $41 today.
The five boxes
- Pays: yes, 38 years without a cut.
- Raises: 25 straight years of increases. A Dividend Aristocrat.
- Safe: about 78% of earnings paid out. Covered, but elevated, and this is the soft box (more below).
- Undervalued: today's yield sits about 149% above its own 5-year average, the widest discount to its own history we've ever bought.
- Yield that matters: about 3.96%, one of our highest.
Five boxes, five checks, for a DividendAbundance Score of 88 — Strong.
The discount is real, not just a big drop
We're careful about this, because a stock that's fallen a long way is not the same thing as a cheap one. So we measure against Nike's own history: it used to yield about 1.6%, and today it yields nearly 4%. Since a yield rises as a price falls, that means Nike is trading far below the price the market normally assigns it.
And it isn't just our yardstick. Morningstar pegs Nike's fair value at $94 a share, more than double the roughly $41 we paid, and rates it wide-moat and deeply undervalued. When a careful outside analyst and our own five-box test both land on "unusually cheap," that's the kind of agreement we like to see.
The honest part: this is a bet on the comeback
We won't dress this up. Nike is cheap because it has real problems, and fixing them will take time. Its market share in China fell from about 26% to 16% as local rivals surged, and one recent quarter saw profits nearly evaporate. Newcomers like Hoka and On keep the pressure on. The turnaround (Nike calls it "Win Now") is underway, but the timing is uncertain, and things could get bumpier before they get better.
That's also why the "safe" box is our soft one. At 78%, the dividend takes a big bite of today's depressed earnings. The reassuring part: that ratio is high because profits are temporarily low, not because the payout is reckless. As earnings recover, that same analyst expects the payout to fall back toward a comfortable 45–50%, and Nike's balance sheet and cash flow comfortably cover the dividend in the meantime. We're being paid nearly 4% a year to wait for the recovery.
One more bit of honesty: Nike is our third consumer-focused name, alongside Tractor Supply and Lowe's, so we're a little heavier there than a perfect spread. We made the call that a wide-moat Aristocrat at half its estimated worth was worth the concentration.
The numbers on this week's buy
- Invested: $100.00
- Bought: 2.412 shares at $41.46
- New annual dividend income added: about $3.96 per year
- Every dividend flows into the next pick, so the income keeps compounding between buys.
Nine weeks in, nine businesses, and this week a household name bought while the market had written it off. The running totals are on the portfolio page, and the slider lets you drag through time to watch the income grow.
That's week nine. We bought a wide-moat Aristocrat at a steep discount and told you plainly it's a bet on a turnaround. See you next week for pick number ten.
This is not financial advice. We're individual investors sharing our own approach and the reasoning behind our own real decisions, not licensed advisors. We own, or are buying, the stocks we write about in this series. Do your own research and consider speaking with a financial professional before investing. Dividend figures, yields, share counts, and prices are accurate to the best of our knowledge as of the publish date and will change over time.