After surging to an all-time high of over $170 per share in 2021, Nike (NKE -10.69%) stock has given up all of its post-pandemic gains and is hovering around multiyear lows.

Leadership changes and a new corporate strategy centered around product innovation and key markets in China and North America could help the business turn around. But trade tensions, weak consumer spending, and high interest rates are throwing a wrench into Nike's recovery and testing investor patience. Younger brands like Hoka -- owned by Deckers Outdoor -- and On from On Holding have eroded Nike's pricing power and some of its competitive advantages.

There are a few reasons to be optimistic about Nike in the near term. But Nike does have an ace in the hole that could make the dividend stock worth buying now.

A person smiling while going for a run with headphones.

Image source: Getty Images.

Nike has become a solid source of passive income

Companies have plenty of options when it comes to deploying capital. They can reinvest in the existing business, make an acquisition, pay down debt, distribute dividends, or repurchase stock.

As Nike matured and grew into a global industry leader, its capital allocation became more balanced. Buybacks and dividends are now key levers that Nike pulls to return value to shareholders. In the past, Nike relied heavily on organic growth to drive sales, earnings, and its stock price.

Nike has increased its dividend for 23 consecutive years. The struggling stock price paired with ongoing raises pushed Nike's yield up to 2.3%. While it's certainly not high-yield territory, Nike has now become a solid dividend stock -- yielding a full percentage point more than the S&P 500 average of 1.3%.

NKE Chart

NKE data by YCharts

Nike currently sports its highest yield in more than 15 years -- making it an appealing source of passive income.

The power of buybacks

In June 2022, Nike's board of directors approved an $18 billion four-year buyback program -- which is significant relative to Nike's current market cap of around $100 billion.

In Nike's most recent quarter, third-quarter fiscal 2025, it bought back $499 million in stock, or 6.5 million shares, bringing the total number of shares repurchased to 119.3 million for a total price of $11.8 billion.

Despite Nike's slowing growth, the company's ability to continue raising its dividend and buy back stock is a testament to its strong cash flow. Buybacks can be a great use of capital when a stock price is beaten down because a company can repurchase even more shares. Buybacks reduce the outstanding share count, thereby increasing earnings per share. Buybacks provide a vote of confidence that Nike management may feel the stock is undervalued.

Not your typical turnaround

Nike's sales and earnings may be slumping, but it is still a cash cow that can easily afford to support its growing dividend and stock repurchases. When investors think about a business undergoing a turnaround, it can mean a weakening balance sheet, struggling profitability, and a potential dividend cut. Nike is nowhere near the point where it would have to consider cutting its payout.

And in many ways, buybacks provide a margin for error in the capital return pecking order. If conditions worsened, Nike would likely pause buybacks to free up capital to keep its dividend streak alive. The fact that it hasn't done that is an encouraging sign.

All told, Nike stands out as an intriguing buy for value investors confident in the company's ability to endure a prolonged downturn. However, it's worth noting that the stock could remain under pressure until there's tangible evidence of sales and operating margin improvement.