Nike Now Yields More Than Coca-Cola. Is the Turnaround Finally Priced In?

Nike's (NYSE: NKE) forward (12-month) dividend yield is 4% -- well above Coca-Cola's 2.4%. This is notable given Coke's status as a Dividend King, a label reserved for companies that have raised their dividends for 50-plus straight years.

Nike's elevated yield reflects a lower share price despite the company continuing to pay a steady quarterly dividend. Instead of being priced in, the market might be undervaluing the stock ahead of a successful turnaround.

Nike's latest results still showed revenue declines, yet the underlying story is getting more constructive. If management executes, an improvement in margins and recovery in profitability could drive meaningful upside over the next several years.

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Why Nike's dividend looks sustainable

High yields often show up when investors expect limited growth -- which is why mature, dominant businesses with less runway, including many Dividend Kings, tend to pay above-average yields. Those stocks are typically bought for income first, not for market-beating appreciation.

Nike's yield is high mainly because the stock is down, not because the company can't afford the payout. The company recently declared a $0.41 dividend, payable Oct. 1 to shareholders of record Sept. 1, putting the annualized dividend at $1.64 per share.

Although the payout ratio is elevated, Nike still generates sufficient cash to support its quarterly dividend, especially given the expected rebound in fiscal 2027. Nike's trailing 12-month free cash flow of $2.2 billion was less than its $2.4 billion in dividend distributions over the same period. But analysts expect free cash flow to rebound to $3 billion in fiscal 2027, consistent with positive trends management is beginning to see in margin stabilization.

If cash generation improves as management focuses on cleaning up inventory, the dividend becomes easier to support -- and the stock has room to move higher. Unlike Coke, Nike can offer both income and real upside.

Why Nike's turnaround is hitting an inflection point

Full-year sales were essentially flat at about $46 billion (down 2% on a currency-neutral basis). Still, Nike's latest earnings report included signals of improving fundamentals.

Demand remains softest in lifestyle categories (sportswear and Jordan streetwear), which still represent roughly half of sales. But performance wear is holding up better -- and that matters because it's the core of Nike's brand.

Nike Running is the standout, producing five straight quarters of double-digit growth. Management also pointed to better retail trends in training and global football. Strength in these categories suggests Nike is winning where it historically wins best -- performance products -- and that healthier growth can return as the company fixes inventory levels and leans harder into its strongest franchises.

Valuation helps the investment case. Nike trades at about 1.3x sales, well below its historical norm of 2.0x or higher. If Nike cleans up inventory, improves sales mix, and expands margins, investors could reward it with a higher multiple.

The turnaround path will likely stay bumpy in a cautious consumer environment. But between the high yield and the discounted price-to-sales ratio, the market doesn't appear to be fully pricing in a successful turnaround -- and that could offer investors meaningful upside potential.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool has a disclosure policy.