1 Dividend Stock Owned By Billionaire Bill Ackman That Could Double By 2030

Investors like to watch Bill Ackman’s trading moves closely. That’s because he’s a billionaire hedge fund manager who has regularly put up market-beating returns since 2004, with a strategy focused on making concentrated bets in high-quality businesses and holding for the long term.

Pershing Square Capital Management, Ackman’s hedge fund firm, made a notable purchase in a new holding during the six-month period that ended Sept. 30. This is a company most investors have undoubtedly heard of, although it has struggled recently to drive growth.

Nonetheless, I believe this billionaire’s dividend stock investment could double by 2030. Here’s why.

Ackman and his fund initiated a stake in Nike (NYSE: NKE), the leader in the market for athletic footwear and apparel. Pershing Square bought over 16.2 million shares in total in the second and third quarters of 2024, giving Nike a sizable 11.2% weight in the portfolio. It was the sixth-largest holding in the portfolio as of Sept. 30.

By looking at his previous and current holdings, it’s clear that Ackman is familiar with popular consumer-facing brands, a list that includes Chipotle Mexican Grill, Wendy’s, and Target, for example. While he’s known for taking an activist role in the businesses he buys shares in, it’s anyone’s guess if Ackman plans to be hands-off or hands-on with the Nike position.

Nike has been profitable for a very long time. In the past decade, its net profit margin has averaged 10.1%. This helps the business generate consistent free cash flow.

One way management rewards shareholders is by using excess cash to fund dividends. Nike’s quarterly payout of $0.40 currently yields 2.16%. If that doesn’t impress you, it’s important to realize that the payout has been increased annually for 23 straight years. It has climbed a whopping 186% in just the last 10 years.

It’s definitely encouraging to see a prominent hedge fund manager buy Nike, giving the business a much-needed vote of confidence. But how a hedge fund invests should not drive an investing decision. Investors looking to copy Ackman’s moves should also have a good understanding of the stock’s current situation. It has some favorable traits that could lead the stock to doubling in the next five years.

There’s no denying that Nike’s fundamentals have taken a hit, as the company alienated physical retailers and did a subpar job refreshing its product lineup. While there might be some more challenges in the near term, namely selling off excess inventory that will pressure margins, I think the financials will markedly start to improve over the next few years.

For starters, Nike’s new CEO, Elliott Hill, is focused on putting sports back at the center of the company’s product strategy. This means less reliance on lifestyle and fashion-inspired lines, like Air Force 1 or Dunk. Drawing excitement from consumers will be key.

It’s also critical that Nike regains the trust of wholesale partners that it might have abandoned during the height of the COVID-19 pandemic. Consumers continue to shop at brick-and-mortar retailers, a trend that is likely to be an important part of commerce for a very long time.

Nike also needs to ensure it remains on top of its marketing game. The brand strength is unquestionable. Leaning into this competitive edge is necessary to drive deeper connections with consumers.

Add higher sales potential with an already profitable business model, and it’s not unreasonable to believe Nike’s earnings could be markedly higher in five years.

Another tailwind that can work to Nike shareholders’ benefit is an improving valuation. Shares currently trade at a price-to-earnings ratio of 22.8. That’s well below the 37.5 trailing-10-year average, and it’s not that much higher than the low during that period of 19.1.

The formula is that simple. Rising earnings coupled with a higher valuation multiple give Nike shares a good shot to double by 2030. Ackman likely adopts a similar level of bullishness.

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Nike, and Target. The Motley Fool recommends the following options: short March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

1 Dividend Stock Owned by Billionaire Bill Ackman That Could Double by 2030 was originally published by The Motley Fool

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