Sarah Travers
The S&P 500 has achieved new peaks in 2024, hitting an all-time high, yet other major indices haven’t kept pace. The Nasdaq Composite has surged by 22.3% year-to-date, and the S&P 500 has shown a robust 16.7% increase. However, the Dow Jones Industrial Average trails behind with a modest gain of less than 5%. Despite strong performances from significant players like Amazon, Microsoft, and Goldman Sachs, the Dow’s lagging is due to declines in reliable blue-chip stocks such as UnitedHealth Group and Home Depot. In this mixed performance landscape, notable buying opportunities exist with McDonald’s and Nike, both trading near their 52-week lows.
Nike: Navigating Historic Hurdles
Nike is currently grappling with historic challenges, hovering around its lowest levels since the pandemic-related drop in 2020. Despite sales being close to an all-time high, market concerns are focused on future prospects rather than past achievements. Nike’s business has shown strain, with a significant sell-off following its first-quarter fiscal 2023 earnings report. Key issues include declining profit margins, inflated inventory levels, and growth challenges in crucial markets like China.
In recent earnings calls, Nike reported stagnant revenue growth, with a 2% decline in fiscal 2024 and anticipated mid-single digit revenue decreases in fiscal 2025. This outlook contrasts sharply with the company’s previous forecasts for positive sales growth. Furthermore, Nike’s Board of Directors approved an $18 billion stock buyback program in June 2022, and the company has repurchased $4.3 billion in stock while distributing $2.2 billion in dividends during fiscal 2024.
Despite these setbacks, Nike possesses strengths that suggest a potential recovery. The company’s expansion into e-commerce and focus on direct-to-consumer sales are likely to improve margins and customer engagement. Nike’s dividend yield currently stands at 1.9%, with a forward price-to-earnings (P/E) ratio of 23.6, the highest yield in 15 years. These factors, coupled with Nike’s strong brand and track record, make it a compelling buy despite recent challenges.
McDonald’s: Reaffirming Value Amid Consumer Trends
McDonald’s has faced impacts from a price-conscious consumer base. Initially, the company raised prices to keep up with inflation, but it now faces the challenge of reminding customers of its value proposition. Recent initiatives include the launch of a $5 Meal Deal, which includes a McDouble or McChicken sandwich, small fries, four-piece chicken McNuggets, and a small soft drink. Additionally, McDonald’s has introduced a promotion offering a free medium fry with any $1 purchase every Friday through its app for the rest of 2024. These promotions aim to boost traffic, especially during the summer when families are more likely to dine out.
McDonald’s has a robust history of returning capital to shareholders, having doubled its dividend over the last decade and reduced its share count by over a quarter. In October, the company increased its dividend by 10%, marking the 47th consecutive dividend raise, positioning McDonald’s to become a Dividend King by 2026. The company’s buybacks have also driven earnings-per-share growth, making the stock more valuable over time.
McDonald’s stock has seen impressive gains over the last decade, nearly doubling in 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 below historical averages.
Long-Term Value Amid Short-Term Struggles
Nike and McDonald’s, despite their recent difficulties, present compelling long-term investment opportunities. Nike’s stock has fallen 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 offer a solid foundation for recovery.
Investing during volatile periods can be a powerful strategy for wealth accumulation. Nike’s current downturn is driven by real challenges, yet the company’s potential to adapt through e-commerce expansion and brand strength remains strong. McDonald’s continues to show resilience with its value-driven promotions and shareholder-friendly policies.
Evaluating 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 posted 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 considering, with the potential for significant returns as they navigate their respective recovery paths.
