Down 81% From Its All-Time High, Is Nike Stock a Generational Buying Opportunity for Long-Term Investors?

Nike's (NYSE: NKE) stock struggles over the last half a decade have been striking. While the company was once one of the thriving giants of the consumer goods sector, failed growth strategies have turned it into one of the market's most high-profile disappointments.

Last month, Nike was removed from the S&P 100 index because its market capitalization had fallen below the level that qualified it for inclusion. For reference, the company had been a part of that index for 18 years. The company's share price is now down 81% from its late 2021 high, and its market capitalization has fallen from a peak of roughly $264 billion to roughly $51 billion. Does this massive pullback present a generational buying opportunity?

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Does Nike's beaten-down valuation and big dividend make it a buy?

At current share prices, Nike's dividend offers a yield of roughly 4.8%. Its yield has never been higher, and the footwear and apparel giant has increased its payouts annually for 24 consecutive years. While it's unlikely that the company will enact a big payout increase in the near term, there's a solid chance that it will deliver another low-single-digit percentage increase this November that helps sustain the relative value of its dividend in the face of inflation.

With a payout increase this fall, Nike would achieve a quarter-century streak of dividend payout growth. That would be an impressive feat -- and one that the company's leadership team may wish to achieve specifically to shore up shareholder confidence. On the other hand, income investors should approach the stock with the understanding that there is a real risk of a payout cut at some point.

At the beginning of this month, Nike published results for its fiscal 2027 first quarter, which ended Aug. 31. Sales in the period fell 4% year over year to $11.2 billion, and the company guided for a high-single-digit percentage revenue deterioration for the full year.

Crucially, management expects that sales weakness in the company's Greater China geographic segment will continue through the remainder of the current fiscal year and into fiscal 2028. Nike is facing a structural demand problem in the geographic market that management put at the center of its growth strategy over the last decade, and it's now looking at a declining sales trajectory that has no clear end in sight as shoppers in the region continue to shun the brand in favor of local alternatives.

While Nike stock currently offers an attractive dividend yield, its payout ratio -- the share of net income that is required to cover the distribution -- looks dangerously high in light of the struggles the business is experiencing. Management will continue to seek ways to improve efficiency, but it will likely also need to increase spending in some areas in hopes of improving its long-term competitive footing. With that in mind, investors should understand that expecting continued dividend payouts at current levels is a risky proposition -- and news of a payout cut could trigger further sell-offs.

Keith Noonan 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.