The S&P 500 has been climbing to new heights in 2024, marking an all-time high, yet not all major indices are performing equally well. While the Nasdaq Composite is up 22.3% year-to-date and the S&P 500 has delivered a solid 16.7%, the Dow Jones Industrial Average is lagging significantly with less than a 5% gain. Despite gains from major components like Amazon, Microsoft, and Goldman Sachs, the Dow’s underperformance has been influenced by sell-offs in reliable blue-chip stalwarts such as UnitedHealth Group and Home Depot. Amidst this uneven performance, there are notable buying opportunities in McDonald’s and Nike, both trading near their 52-week lows.
Nike: Overcoming Historic Challenges
Nike is currently undergoing a historic slowdown, hovering near its lowest levels since the pandemic-driven plunge in 2020. Despite sales being close to an all-time high, the market is more concerned with future prospects than past achievements. Nike’s business has shown signs of strain, with a significant sell-off following the company’s first-quarter fiscal 2023 earnings report. Challenges include falling profit, inflated inventory levels, and growth issues in key markets like China.
In recent earnings calls, the company reported stagnant revenue growth, with a 2% decline in fiscal 2024 and expectations of mid-single digit revenue decreases in fiscal 2025. This bleak outlook contrasts with the company’s previous guidance for positive sales growth. Additionally, Nike’s Board of Directors approved an $18 billion stock buyback program in June 2022, and the company has bought back $4.3 billion in stock while paying $2.2 billion in dividends during fiscal 2024.
Despite these challenges, Nike has strengths that suggest potential for a turnaround. The company’s expansion into e-commerce and a focus on selling directly to consumers are likely to improve margins and customer engagement. Currently, Nike’s dividend yield stands at 1.9%, with a forward price-to-earnings (P/E) ratio of 23.6, the highest yield in 15 years. These factors, combined with Nike’s strong brand and track record, make it an attractive buy despite its recent struggles.
McDonald’s: Restoring Value Amid Consumer Consciousness
McDonald’s has also been impacted by a price-conscious consumer base. The company initially hiked prices to keep up with inflation, but there is concern that it has reached a limit and needs to remind customers of its value proposition. Recent initiatives include the introduction of a highly anticipated $5 Meal Deal, which includes a McDouble or McChicken sandwich, small fries, four-piece chicken McNuggets, and a small soft drink. Additionally, McDonald’s announced a promotion offering a free medium fry with any $1 purchase every Friday through its app for the remainder of 2024. These deals aim to boost traffic, especially during the summer months when families are more likely to dine out.
McDonald’s has a solid history of returning capital to shareholders, doubling its dividend over the past decade while reducing its share count by more than 25%. In October, the company increased its dividend by 10%, marking the 47th consecutive year of dividend hikes. This trajectory puts McDonald’s on track to become a Dividend King by 2026. Additionally, the company’s share buybacks have fueled earnings-per-share growth, enhancing the stock’s value over time.
McDonald’s stock has shown impressive gains over the last decade, nearly doubling its price. This growth has been supported by consistent EPS increases, aided by the company’s aggressive buyback strategy. Despite recent challenges, McDonald’s long-term investment thesis remains strong, with a current dividend yield of 2.7% and a P/E ratio lower than its historical averages.
Long-Term Potential Amid Short-Term Challenges
Nike and McDonald’s, despite their recent struggles, offer compelling long-term investment opportunities. Nike’s stock has dropped over 30% year-to-date, while McDonald’s is down just over 15%. Both companies face the challenge of returning to growth while maintaining margins. However, their strategies and strong brand reputations provide a solid foundation for recovery.
Investing in stocks during periods of volatility can be a powerful strategy for compounding wealth. Nike’s current downturn is driven by valid reasons, yet the company’s potential to adapt through its e-commerce expansion and brand strength remains strong. McDonald’s continues to demonstrate resilience with its value-driven promotions and shareholder-friendly policies.
A Closer Look at Dow Dividend Stocks
The uneven performance of major indices in 2024 underscores the importance of strategic investment choices. While the S&P 500 and Nasdaq Composite have shown significant gains, the Dow Jones Industrial Average’s lagging performance highlights opportunities in individual stocks. Nike and McDonald’s, trading near their 52-week lows, present attractive buying opportunities for patient investors willing to look beyond short-term challenges.
Nike’s ongoing challenges and McDonald’s consumer-focused strategies both reflect broader market trends, but their strong dividends and historical resilience offer a promising outlook. For investors seeking long-term value, these Dow dividend stocks are worth a closer look, with the potential for significant returns as they navigate their respective paths to recovery.
