2 Dividend Stocks to Double Down on Now

2024 looks set to be another bumper year for the stock market, with the benchmark S&P 500 which has delivered a total return of 17% so far this year. However, the strong performance has been uneven, and several stocks have yet to fully recover from their 2022 declines. About 30% of the index’s components are trading so far in 2024, including some otherwise reliable dividend stocks.

Unfortunately, some of these stocks will never fully recover. But there are at least two underperforming dividend stocks that clearly have the potential to recover. As they do, their dividends are strong enough to provide growing annual yields at attractive valuations. Let’s take a closer look at why it’s worth doubling down on these two dividend stocks.

1. Academy of Sports and Outdoor Sports

Academy of Sports and Outdoors (ASO -3.92%) Academy Sports, Inc. is a former military surplus store chain that has transformed itself into a sporting goods and outdoor gear retailer. The $3.9 billion company operates 284 stores, primarily in the southern United States. Academy’s stock price has fallen nearly 19% so far in 2024 as sales have stagnated. Management says Academy Sports’ performance has been dampened as consumers are challenged by the “current macroeconomic environment.”

Academy Sports launched its IPO in October 2020, so the stock is still relatively young. But its operations are already profitable enough to justify a quarterly dividend. At recent share prices, that $0.11 per share quarterly payment represents an annual yield of 0.8%. The yield isn’t much to attract income investors yet. But the company has already raised its dividend twice in two years, with increases of 20% and 22.5%. Investors should be confident that growth will continue.

With any dividend-paying stock, potential investors should consider the payout ratioalso. Once payouts start to represent 75% or more of free cash flow, there’s reason to be cautious that a cut is coming. That’s far from the case here, as Academy Sports’ payout ratio is a very manageable 5.7%, providing more justification for significant dividend increases going forward.

After hitting record highs in early March 2024, the stock is taking a hit this year as Academy Sports has now reported multiple quarters of small year-over-year declines in net sales and comparable sales, falling short of 2023 gains. Management said it expects the tough comps and consumer sentiment challenges to persist through the remainder of fiscal 2024 (which ends in late February 2025), and is forecasting annual sales growth of -1.5% to 3%. Management also said it plans to open 15 to 17 new locations this year, which could explain the variable revenue outlook.

In short, net income fell 18.6% year over year to $76.5 billion in the most recently reported quarter (Q1 of fiscal 2024, which ended May 4). For fiscal 2024, management is forecasting net income of $455 million to $530 million. At the midpoint, that would be a gain of about 2% from the $483.2 million it earned in fiscal 2023.

The company currently trades at a modest 8.5 times expected earnings, significantly lower than its closest US competitor, Dick’s Sporting Goods, which trades at 15.7 times expected earnings, despite similar challenges with stagnant revenue and net profit.

ASO PE ratio (forward) data from YCharts.

As management waits for consumer demand to recover, it is aggressively allocating capital to reduce debt and buy back shares. The company reduced its net debt from $291.6 million at the end of fiscal 2023’s first quarter to $108.9 million at the end of fiscal 2024’s first quarter. Additionally, management has reduced the number of shares outstanding by 22.4% over the past three years, significantly increasing the ownership stakes of existing shareholders.

Looking ahead, limited consumer spending may continue to weigh on revenue, but Academy’s attractive valuation and smart capital allocation strategy suggest this is an attractive stock worth further consideration.

2.Nike

Shares of Nike (NKE 0.44%)The world’s largest supplier of athletic footwear and sportswear, fell sharply after a disappointing fiscal 2024 Q4 report released in late June. The stock is now down about 33% so far this year.

Despite this, Nike remains one of the most shareholder-friendly companies on the market, with a 22-year streak of dividend increases. At recent share prices, its quarterly dividend of $0.37 per share yields an annual yield of 2%. The payout is fairly manageable, with a payout ratio of 28.2%.

The stock’s woes can be attributed to declining digital sales and weaker demand in the Chinese market. In the most recently reported quarter, net sales fell 2% year-over-year to $12.6 billion. Worse, CFO Matthew Friend suggested during the most recent earnings call that Nike won’t be able to fix these issues in the short term, adding, “The next few quarters are going to be challenging.”

So why buy stocks now? Nike has a pristine balance sheet with $2.7 billion in net cash, meaning the company likely won’t need to take on expensive debt anytime soon. In fact, the company earned about $161 million in interest income on its cash position in fiscal 2024.

Additionally, Nike’s gross margin and profit margin increased for the most recently reported quarter. Specifically, gross margin — a key indicator of operating efficiency and pricing power for consumer products companies — rose 1.1 percentage points, helping to drive net income up 45 percent year over year to $1.5 billion.

As the stock has had a difficult year, it is now trading at 22.9 times expected earnings, the lowest level in three years.

NKE PE Ratio (Forward) data from YCharts.

Are These Two Struggling Dividend Paying Stocks Worth Buying?

Shares of Academy Sports and Nike are currently underperforming due to reduced consumer spending on sportswear and goods. However, this presents an attractive buying opportunity. Both companies have strong cash positions and consistent profitability, allowing them to continue returning capital to shareholders through growing dividends. When consumer demand picks up, these stocks are poised to bounce back.