Dividend Aristocrats In Focus: Lowe’s Companies

Up to date on March nineteenth, 2024 by Bob Ciura

Lowe’s Corporations (LOW) has a extremely spectacular monitor document of long-term dividend progress. The corporate has elevated its dividend for over 50 years in a row. This makes Lowe’s a uncommon dividend inventory, even among the many Dividend Aristocrats, as the corporate qualifies for Dividend King standing because of greater than 5 a long time of annual dividend will increase.

Yearly, we assessment every of the Dividend Aristocrats,  a gaggle of 68 corporations within the S&P 500 Index with 25+ consecutive years of dividend will increase.

Now we have constructed a full record of all 68 Dividend Aristocrats. You may obtain a free copy of our Dividend Aristocrats record, together with essential metrics like dividend yields and payout ratios, by clicking on the hyperlink beneath:

Disclaimer: Certain Dividend just isn’t affiliated with S&P World in any approach. S&P World owns and maintains The Dividend Aristocrats Index. The knowledge on this article and downloadable spreadsheet is predicated on Certain Dividend’s personal assessment, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person traders higher perceive this ETF and the index upon which it’s primarily based. Not one of the data on this article or spreadsheet is official information from S&P World. Seek the advice of S&P World for official data.

Along with being a Dividend Aristocrat, Lowe’s is on the unique record of Dividend Kings, which have raised their dividends for an incredible 50+ years in a row. You may see your complete record of Dividend Kings right here.

Lowe’s is also a high-growth dividend inventory. This text will talk about Lowe’s’ enterprise mannequin, progress potential, and valuation.

Enterprise Overview

Lowe’s was based in 1946. Within the 75 years since, it has grown into the second largest residence enchancment retailer, behind solely The Dwelling Depot (HD).

The corporate operates greater than 1,700 shops within the U.S., Canada, and Mexico. Lowe’s gives a variety of merchandise, for upkeep, restore, reworking, and adorning the house. It has a wide array of main nationwide manufacturers, in addition to numerous non-public manufacturers.

Lowe’s reported fourth quarter 2023 outcomes on February twenty seventh, 2024. Whole gross sales got here in at $18.6 billion in comparison with $22.4 billion in the identical quarter a yr in the past. Comparable gross sales decreased by 6.2%, whereas web earnings-per-share of $1.77 in comparison with $1.58 in fourth quarter 2022.

Nevertheless, adjusted EPS within the year-ago interval was $2.28 when excluding the transaction prices associated to the sale of the Canadian retail enterprise within the prior yr. The corporate continues to be negatively impacted from a discount in DIY discretionary spending.

The corporate repurchased 1.9 million shares within the fourth quarter for $404 million. Moreover, it paid out $633 million in dividends.

Lowe’s initiated its fiscal 2024 outlook and expects to earn adjusted diluted EPS of $12.00 to $12.30 on whole gross sales of $84 to $85 billion. Capex will seemingly are available in at $2 billion, and Lowe’s expects an working margin of 12.6% to 12.7%.

Development Prospects

We imagine that Lowe’s will ship 9% annual earnings-per-share progress over the subsequent 5 years. Lowe’s has an extended runway of progress up forward.

Lowe’s has made a concerted effort lately to enhance its in-store expertise for patrons by merchandising and stock follow optimization, in addition to investing within the capabilities to satisfy orders outdoors of its shops.

This contains particular options for Professional prospects that drive recurring income, in addition to making it simpler for DIY prospects to order their merchandise on-line, and decide them up or have them delivered. This can be a strategic shift from the previous mannequin Lowe’s operated underneath, and it has labored properly lately.

Lowe’s typically opens a small variety of new shops annually, so that’s not a significant driver of progress. Nevertheless, it continues to search out methods to capitalize on rising housing and building spending, and we see these as progress drivers transferring ahead because of nonetheless comparatively low mortgage charges, whether or not or not the shop depend rises.

The U.S. financial system continues to develop, regardless of progress headwinds reminiscent of excessive inflation charges. Constructive GDP progress is arguably an important financial indicator for Lowe’s, as the corporate is very reliant on shopper spending. The continued U.S. financial progress is a constructive catalyst for Lowe’s.

Lowe’s has steadily been repurchasing shares on the open market lately. These buybacks shrink the corporate’s share depend, which interprets right into a rising portion of the general income that the corporate generates for every remaining share.

Buybacks have been a significant driver within the compelling earnings-per-share progress that Lowe’s loved, and we imagine the identical will maintain true sooner or later:

Supply: YCharts

The mix of continued growth in e-commerce, total financial progress in the long term, and working ought to drive income for Lowe’s. With the impression of buybacks added, we imagine annual earnings-per-share progress within the mid-single-digit vary could be very a lot achievable.

Aggressive Benefits & Recession Efficiency

The retail trade usually doesn’t provide many aggressive benefits. This can be a extremely difficult retail setting, because the rise of Amazon and different Web retailers threatens to undercut brick-and-mortar shops. Customers have shifted spending {dollars} towards e-commerce for the comfort and low costs.

Nevertheless, Lowe’s is a specialty retailer, which supplies it with a aggressive benefit. Dwelling enchancment tasks are sometimes complicated. Customers are keen to journey to shops, to examine merchandise in particular person, and to ask inquiries to workers members. This has helped defend residence enchancment retailers from Amazon (AMZN).

That stated, Lowe’s just isn’t immune from recessions. The patron is liable to declining throughout financial downturns. Lowe’s will depend on a financially-healthy shopper, with stable housing and building markets. The Nice Recession was a very steep downturn, which took a big toll on Lowe’s backside line.

Lowe’s earnings-per-share throughout the Nice Recession are beneath:

2007 earnings-per-share of $1.86
2008 earnings-per-share of $1.49 (20% decline)
2009 earnings-per-share of $1.21 (19% decline)
2010 earnings-per-share of $1.44 (19% improve)

Lowe’s earnings fell sharply throughout the recession, however the firm nonetheless remained worthwhile. This helped it proceed growing its dividend annually. And, it bounced again fairly fast, as by 2013, Lowe’s earnings-per-share had surpassed 2007 ranges.

Valuation & Anticipated Returns

Lowe’s is anticipated to generate adjusted EPS of $12.15 for 2024. Because of this, the inventory trades at a price-to-earnings ratio of 20.2. That is above our honest worth estimate of 19, so we see the inventory as barely overvalued. Because of this, a contracting price-to-earnings ratio might cut back future returns by roughly 1.2% per yr for the subsequent 5 years.

Along with valuation modifications, Lowe’s returns will include earnings progress and dividends.

We see annual earnings-per-share progress at 9% yearly, plus the present 1.8% yield, offset considerably by a declining valuation a number of. That may produce total whole annual returns of roughly 9.6%, which is a pretty potential charge of return.

The dividend payout ratio stays close to 36% of earnings, so there’s actually loads of room for added dividend progress within the coming years.

Remaining Ideas

Lowe’s has elevated its dividend for 60 consecutive years. The present setting is tough for retail, however Lowe’s operates in a distinct segment that ought to stand up to aggressive threats from on-line retailers.

Lowe’s remains to be rising gross sales and earnings, which ought to enable for continued dividend progress. And, it has a conservative dividend payout ratio, which additionally helps excessive dividend will increase. With a stable anticipated charge of return of round 10% per yr, Lowe’s inventory receives a purchase ranking at present costs.

Moreover, the next Certain Dividend databases comprise probably the most dependable dividend growers in our funding universe:

For those who’re searching for shares with distinctive dividend traits, think about the next Certain Dividend databases: