Nike Dividend Hike Imminent, But Future Cuts Looming

Nike's (NKE) dividend yield has surged to 4%, near its all-time high, after a significant price drop. The company hasn't traditionally been known for dividends, but with a 77% decline from its November 2021 highs, the stock's payout ratio is under scrutiny.

With 24 consecutive years of dividend increases, Nike would join the elite club of Dividend Aristocrats if it raises its dividend this year. However, the company faces headwinds, trading near its lowest level in 12 years and struggling with a massive capital erosion.

Nike's financial metrics suggest that its dividends are not sustainable unless earnings and cash flows improve. Analysts expect earnings to rise 10% in the current fiscal year, but the payout ratio would be precariously close to 100% if the company raises its dividend by low single digits as it did last year.

Nike management is optimistic about expanding its gross margin, but the company needs to return to top-line growth and deliver on its turnaround. While a dividend cut might be possible in the future, Nike investors can expect a dividend hike later this year.