Lowe's Companies, Inc. : A Dividend King That Shouldn't Be Ignored Income Investors 2017-06-19 08:37:58 Lowe’s CompaniesInc.Lowe's stockdividend stocksNYSE:LOWlow stockdividend aristocrat stockdividend kingearnings outlookdividend incomehigh dividend yield Lowe’s Companies, Inc. (NYSE:LOW): Lowe's stock is a dividend king and dividend aristocrat that is under owned by income investors. Dividend Stocks,Income Investors,News https://www.incomeinvestors.com/wp-content/uploads/2017/06/LOW-stock-150x150.jpg

Lowe’s Companies, Inc. : A Dividend King That Shouldn’t Be Ignored

Lowe’s Stock: Both Dividend King and Aristocrat

Lowe’s Companies, Inc. (NYSE:LOW) is one of the largest home improvement retailers in the world, serving the retail do-it-yourself home improvement market for both the retail customer and commercial businesses. The company operates more than 2,000 in the U.S., Canada, and Mexico.

Lowe’s stock has returned 306% over the past five years, factoring in both the dividend income and stock gains. But now the question is, since the past had stellar returns, is there more upside ahead?

One of the reasons the shares have tripled in value in such a short time is the growth in revenue and earnings. In order for more positive returns from Lowe’s stock price, this trend needs to continue. So can it?

Earnings Outlook

Below are the earnings from the past four years:

Annual Earnings Per Share Fiscal Year of Earnings
$2.16 2014
$2.70 2015
$3.29 2016
$3.99 2017

One of the reasons that investors bid up the shares higher was that Lowe’s earnings grew by approximately 84% over four years. And on an annual basis, earnings increased by more than 20%. With this type of growth, it’s no wonder why shares of Lowe’s are trading at a higher price.

Below is a table of what the future outlook for Lowe’s estimated earnings looks like.

Annual Earnings Per Share Fiscal Year of Earnings
$4.62 2018
$5.27 2019
$5.92 2020
$6.46 2021

Earnings are expected to continue to grow in the future, which means the positive returns could as well.

Last year, Lowe’s doubled the size of its footprint in Canada with an acquisition of Rona Inc. Canada is looked at as a growth opportunity for Lowe’s because its market share up north is less than 15%, and acquisitions increase market share at a faster rate than building out one’s own brand. The purchase also removes one competitor from the marketplace, leaving fewer choices for customers. (Source: “Lowe’s Completes Acquisition Of Rona,.”Lowe’s Companies, Inc., May 20, 2016.)

The acquisition is not the only method of expansion for the company. Lowe’s is also looking at North American markets with populations of more than 500,000 with the intent to open both small- and large-sized stores based on their demographics. The current pace of store openings is one every 10 days. (Source: “Lowe’s Reports First Quarter Sales And Earnings Results,” Lowe’s Companies, Inc.,May 24, 2017.)

Existing stores remain the largest contributor to Lowe’s earnings, with sales expected to grow on a comparable basis when compared to previous years. The operating margins are also expected to improve due to lower operating costs.  This should all eventually reflect positively in the stock price.

Dividend Income

Lowe’s has been paying a quarterly dividend since 1961, signalling to the markets a commitment to reward shareholders. It is quite impressive that the dividend has been in place for so long, but what’s even more impressive is that it has increased for 54 consecutive years.

These 54 years make LOW stock very special. For one, it is a “dividend aristocrat,” one of the 52 stocks on the famed S&P 500 Dividend Aristocrat Index. Stocks on this index are Fortune 500 companies with at least 25 straight years of dividend hikes that trade on the major U.S. exchanges. LOW stock is also a “dividend king,” having increased its dividend for a minimum of 50 consecutive years.

The most recent dividend hike took place the first week of June and was an increase of 17%. Below is information about the past five years of dividend payments.

Ex-Dividend Date
Amount
Change
Declaration Date
Record Date Payment Date
July 24, 2017 $0.41 17.1% June 02, 2017 July 26, 2017 August 09, 2017
April 24, 2017 $0.35 N/A March 27, 2017 April 26, 2017 June 10, 2017
January 23, 2017 $0.35 N/A November 11, 2016 January 25, 2017 February 08, 2017
October 17, 2016 $0.35 N/A August 19, 2016 October 19, 2016 November 02, 2016
July 18, 2016 $0.35 25% June 27, 2016 July 20, 2016 August 03, 2016
April 18, 2016 $0.28 N/A March 18, 2016 April 20, 2016 June 04, 2016
January 15, 2016 $0.28 N/A November 16, 2015 January 20, 2016 February 03, 2016
October 19, 2015 $0.28 N/A August 21, 2015 October 21, 2015 November 04, 2015
July 20, 2015 $0.28 21.7% June 29, 2015 July 22, 2015 August 05, 2015
April 20, 2015 $0.23 N/A March 20, 2015 April 22, 2015 June 06, 2015
January 16, 2015 $0.23 N/A November 17, 2014 January 21, 2015 February 04, 2015
October 20, 2014 $0.23 N/A August 25, 2014 October 22, 2014 November 05, 2014
July 21, 2014 $0.23 27.8% June 30, 2014 July 23, 2014 August 06, 2014
April 21, 2014 $0.18 N/A March 21, 2014 April 23, 2014 June 07, 2014
January 17, 2014 $0.18 N/A November 15, 2013 January 22, 2014 February 05, 2014
October 21, 2013 $0.18 N/A August 26, 2013 October 23, 2013 November 06, 2013
July 22, 2013 $0.18 12.5% June 31, 2013 July 24, 2013 August 07, 2013
April 22, 2013 $0.16 N/A March 22, 2013 April 24, 2013 June 08, 2013
January 18, 2013 $0.16 N/A November 16, 2012 January 23, 2013 February 06, 2013
October 22, 2012 $0.16 N/A August 24, 2012 October 24, 2012 November 07, 2012

Based on past earnings growth, the dividend can continue to increase. The conservative payout ratio is also a factor, with just over one-third of earnings being put towards the dividend.

Most of the remaining portion of earnings is reinvested back into the business for more growth, such as store openings and acquisitions mentioned above. The remainder is put towards buying back shares on the market, a tax-efficient benefit to shareholders that causes the shares they already own to be worth more of the company. In January 2017, Lowe’s announced a share repurchase program of $5.0 billion with no expiration date. (Source: “Lowe’s Companies, Inc. Announces New $5 Billion Share Repurchase Program,.” Lowe’s Companies, Inc., January 27, 2017.)

Share buybacks are also a bullish indicator from a company’s management, who see repurchases as the best use of capital at the time. In fact, even though its shares have increased a great amount over the last five years, Lowe’s appears to believe that there is more upside ahead. and that the shares will trade higher.

Bottom Line On Lowe’s Stock

The purpose of investing is for $1.00 today is worth more in the future. This can potentially be accomplished by investing in Lowe’s stock, given its growth in both earnings and the dividend.

LOW stock is currently offering a dividend yield of 2.04%, and with its dividend king and dividend aristocrat status, long-term investing could lead to increased dividend yield.

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