Some of the world’s best investors stick to dividend portfolios. The steady stream of income makes it a great wealth building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at Lowe’s dividend history and safety…
Business Overview and Highlights
Lowe’s (NYSE: LOW) is an $87 billion business based out of North Carolina. They employ 300,000 people. The Fortune 50 home improvement company serves more than 18 million customers a week. Last year Lowe’s pulled in $71 billion in sales, and that works out to $238,000 per employee.
The company runs within the consumer sector and maintains a solid credit rating (BBB+) from the S&P. This allows Lowe’s to issue cheap debt to grow the business and pay dividends.
Recently, the Lowe’s board of directors declared a quarterly cash dividend of $0.48 per share. The dividend is payable May 8, 2019 to shareholders of record as of April 24, 2019.
Lowe’s 10-Year Dividend History
The company paid investors $0.35 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.85. That’s a 421% increase and you can see the annual changes below…
The compound annual growth is 17.9% over 10 years. Over the last year, the dividend climbed 17.1%. As this chart shows, Lowe’s has one of the most reliable dividends around. Not only is Lowe’s a dividend aristocrat, Lowe’s has achieved the coveted dividend king status. That means Lowe’s has increased their dividend for 50+ years. Through booms and busts, high and low interest rates, bull and bear markets, Lowe’s has continued to find a way forward. There are only 25 companies that make the dividend kings list. Their current dividend streak is far longer than rival Home Depot’s. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Lowe’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 1.77% and that’s below the 10-year average of 1.98%. The chart below shows the dividend yield over the last 10 years…
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that for every $1 Lowe’s earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety… but accountants can manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s Lowe’s payout ratio based on free cash flow over the last 10 years…
The ratio is fairly steady over the last 10 years and the trend is up. The last reported year shows a payout ratio of 29.9%. That payout ratio is 17.9% lower than Home Depot’s. Lower payout ratios increase the likelihood that a company will continue to raise its dividends. So, Lowe’s board of directors has plenty of room to increase their dividend and continue on as dividend kings.
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Good investing,
Peter
