You Can Do Better Than Nike. Buy This High-Yield Dividend Stock Instead.

Investors have been waiting for Nike (NYSE: NKE) stock to turn around for a long time. It's important to have a long-term investing mindset, but it's also critical to know when to pivot. Over the past five years, Nike stock has posted a negative 25% average annualized return. This year, it's worse, with shares down 40%. Its woes have been well documented.

There was a leadership change a year ago, and a new strategy that, in part, focuses on rebuilding the wholesale channels. But challenges persist, and sales and earnings were down year over year in the most recent quarter due to declines in China and sputtering sales for its sportswear and Jordan brands, which account for half of its revenue.

And in its fiscal 2027 guidance, Nike doesn't expect much, if any, improvement. Revenue is anticipated to decline in the high single digits in fiscal 2027 while adjusted earnings are targeted for $1.15 to $1.35 per share, down from $2.10 in fiscal 2026. And Nike stock is not even that cheap, trading at 17 times earnings and 21 times forward earnings.

A better-value option with a higher dividend is Target (NYSE: TGT). Here's why.

Image source: Getty Images.

On Target

Target has been a better turnaround story than Nike. It faced similar challenges to its brand, including tariffs and losing market share amid rising inflation, and the stock price tumbled over four straight years of negative returns from 2022-2025. But Target has reversed course this year with shares up 57% year-to-date. The five-year annualized returns remain negative at -10%, but Target seems headed in the right direction.

Target also underwent a leadership change this year with Michael Fiddelke promoted from within to replace longtime CEO Brian Cornell.

The turnaround plan involves investing some $6 billion into new stores, remodeling, and infrastructure. It is also focusing its sales on certain areas where it is differentiated, like home, beauty, baby, health and wellness, women's style, food and beverage, and pop culture, and trying not to be everything to every shopper.

Furthermore, it has reduced costs for consumers and is improving the customer experience. Target is planning to open 30 new stores and remodel 130.

Successful turnaround

Target has been successful so far, as sales were up 5% in the second quarter and comp sales rose 3.8% year over year. Earnings were up 100% to $4.11 per share, but most of that came from a tariff refund. But even without the tariff refund, earnings rose 20% year over year.

And management raised its full-year guidance for fiscal 2026 to 5% sales growth, up from 4%, and earnings, excluding the tariff refund, to $7.50 to $8.50 per share, up $0.75 from previous guidance.

Target's $1.16 per share dividend is another factor that makes it a buy. It has raised its payout for 57 consecutive years, making it a Dividend King. It also has a high yield of 2.93% and a sustainable payout ratio of 45%.

Finally, Target is cheaper than Nike, trading at just 16 times earnings and 15 times forward earnings. It is a solid buy right now.

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