Nike's Earnings Show Deep Trouble Ahead

Nike (NKE), once considered a reliable dividend stock, has transformed into a cautionary tale of how even seemingly safe investments can become riskier than growth stocks. Over the past five years, the stock has plummeted roughly 80%, and its latest earnings report for the fiscal 2027 first quarter has raised serious concerns about its future.

The report showed a 4% year-over-year revenue decline, which may be the best quarter of Nike's fiscal 2027. The company's guidance for the full year suggests a high single-digit percentage revenue decline. There were no positive highlights in the report. North American revenue, the company's largest segment, grew by only 2%, while China, once seen as a growth opportunity, saw a 26% revenue drop. Revenue also declined in the Asia Pacific & Latin America market, indicating no promising markets for expansion.

The dividend, which has been increased for 24 consecutive years, is now at risk. The stock's slump has pushed the dividend yield to nearly 5%. While the dividend is currently safe due to Nike's $8.4 billion cash position, the high dividend payout ratio of 85.7% raises concerns. Nike's focus on shareholder distributions leaves little capital for reinvestment. If revenue declines continue, the dividend payout ratio could approach 90%, jeopardizing the dividend's sustainability.

Nike is resorting to layoffs to cut costs, which does not suggest a return to growth. With revenue declines projected to worsen, investors may face a dividend cut by the end of the decade, potentially causing a sell-off.