In a bold display of confidence, renowned billionaire investors Bill Ackman of Pershing Square Holdings and Andreas Halvorsen of Viking Global Investors have each recently invested hundreds of millions of dollars into two Dow Jones Dividend Stocks, Nike and McDonald's. Despite facing challenging times within the apparel and restaurant industries, these consumer brands possess profitable businesses capable of sustaining growing dividends. Ackman and Halvorsen's moves suggest hidden value in these blue-chip stocks that other investors may have overlooked.

Pershing Square Holdings, led by Ackman, disclosed a new stake worth $229 million in Nike. The top athletic apparel brand has experienced a plummet in its share price, currently down 53% compared to its 2021 highs. This decline can be attributed to weak consumer spending trends that have affected several retailers in recent years. Despite this setback, Nike's annual revenue of $51 billion, with two-thirds stemming from footwear, remains strong. Fiscal year 2024 showed flat year-over-year revenue growth, primarily driven by the struggling lifestyle product segment. However, Nike's performance products for various sports and services continue to thrive, posting double-digit increases in sales last quarter. This indicates that by shifting its sales mix toward performance products like running and basketball shoes, Nike can pave the way for improvement and capitalize on its brand legacy.

Meanwhile, McDonald's, a well-known fast-food chain, caught the attention of Viking Global Investors, helmed by Halvorsen, who invested a whopping $478 million. Despite facing similar headwinds as Nike and reporting weak sales, McDonald's distinctive value-based brand positioning provides the company with an advantage. In the second quarter, the global comparable sales of the Golden Arches experienced a 1% year-over-year decrease. Nevertheless, McDonald's stock has shown resilience and is nearing new highs. The key driver behind McDonald's success lies in its real estate holdings. The company strategically owns the land on which many of its franchised restaurants are located, unlocking substantial opportunities to leverage these property values in pursuit of profitable growth for its shareholders. With plans to increase its global restaurant base to 50,000 by 2027, McDonald's capitalizes on its real estate expertise and aims to fortify its already profitable franchise business model.

Both Nike and McDonald's prioritize maintaining profitability to sustain dividend payments to their shareholders. Nike's net income grew by 12% in fiscal year 2024, and its dividend payout ratio stands at a manageable 38% of earnings. Currently, Nike's forward dividend yield is at 1.76%, the highest it has been in ten years. Despite trading at a fair valuation, Nike remains an attractive investment due to its potential for double-digit earnings growth over the long term. Similarly, McDonald's, despite an 11% year-over-year earnings decline, pays out approximately half of its earnings in dividends. At a quarterly dividend of $1.67, McDonald's forward yield is at an appealing 2.3%. With an above-average dividend yield and an attractive forward price-to-earnings ratio of 24, McDonald's presents itself as a solid buy for long-term investors.

The recent sizable investments in Nike and McDonald's by Ackman and Halvorsen indicate their belief in the undervalued status of these stocks. Nike, with its clear strategy for growth through product mix optimization and innovation, has the potential to regain its previous highs within the next two years. Simultaneously, McDonald's, with its real estate prowess and successful franchise business model, shows resilience amidst industry challenges and promises stability and profitability for shareholders.

Disclaimer: The author of this article does not hold any positions in the mentioned stocks.