Last update on 2024-06-27

Lowes Companies (LOW) - Dividend Analysis (Final Score: 7/8)

Analyze dividend performance and stability of Lowes Companies (LOW) with a final score of 7/8. Comprehensive insights on dividend yield, growth rate, and payout ratio.

Short Analysis - Dividend Score: 7

We're running Lowes Companies (LOW) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of Lowes Companies (LOW) uses an 8-criteria system to assess the company's dividend policy. LOW scored 7 out of 8, reflecting its overall strong performance in paying dividends. While its current dividend yield of 1.9322% is slightly lower than the industry average of 2.1%, the consistent growth in yield and substantial stock price appreciation over 20 years are positive signs. Notably, the company has maintained an impressive average dividend growth rate of 25.69%, far exceeding the 5% benchmark, despite fluctuations during financial crises. With an average payout ratio of 31.51%, LOW demonstrates prudent management, ensuring sustainability of its dividends. The dividends have remained stable without significant drops and have been paid for over 25 years, highlighting reliability. Additionally, LOW's share repurchase activity over 20 years is robust, indicating solid financial health.

Insights for Value Investors Seeking Stable Income

Considering LOW's strong historical dividend growth, low payout ratio, long record of stability, and consistent share repurchases, the stock is worth further exploration for investors seeking dividend income and long-term growth. Despite a slightly lower current yield than the industry average, LOW's increasing trend and responsible earnings management reflect positively on its future potential. Hence, it would be wise to consider LOW as a viable option for a stable dividend-paying stock in one's investment portfolio.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is important for investors seeking a steady income.

Lowe's Companies, Inc. (LOW) has a current dividend yield of 1.9322%, which is slightly lower than the industry average of 2.1%. This might be perceived as less attractive for income-focused investors. However, by looking at the historical trend, it is evident that Lowe's dividend yield has seen significant growth over the past 20 years, from a modest 0.1896% in 2003 to its current 1.9322%. This upward trend demonstrates a consistent increase in dividend payouts, suggesting a strong commitment to returning value to shareholders. Furthermore, when we compare the stock price growth, which closed at $27.695 in 2003 and has appreciated to $222.55 in 2023, a substantial increase, it reflects Lowe's strong overall financial health and growth potential. Therefore, despite being slightly lower than the industry average, Lowe's increasing dividend yield signifies a positive trend, supported by robust stock price appreciation and increasing dividends per share (from $0.0525 in 2003 to $4.3 in 2023), indicating that the company is likely to continue supporting and potentially increasing its dividend payouts in the future.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures the percentage increase in dividends paid per share over a period, indicating a company's ability to generate and distribute profits. A growth rate higher than 5% is generally considered favorable as it shows a strong and increasing income return for investors.

Lowe's Companies (LOW) has achieved varying dividend growth rates over the past 20 years, with values ranging from as high as 62.50% in 2007 to as low as 6.06% in 2009. At first glance, a few significant dips, as seen in 2008 and 2009 during the financial crisis, could cause some concern. Despite these fluctuations, the overall average dividend growth rate stands at 25.69%, which is significantly higher than the benchmark of 5%. This robust average suggests that Lowe's has consistently managed to grow its dividend over time, contributing positively to shareholder value and indicating a potentially strong performance in ability to generate profits. Therefore, this trend is indeed favorable for long-term investors seeking reliable and increasing dividend payouts from their investment.

Average annual Payout Ratio lower than 65% in the last 20 years?

An average payout ratio of lower than 65% over a period of 20 years indicates a company's ability to sustain its dividend payments without sacrificing its financial health. A stable or growing payout ratio close to or below this threshold suggests prudent management of earnings.

The data shows that Lowe's Companies (LOW) has maintained an average payout ratio of approximately 31.51% over the last 20 years. This trend is quite favorable as it is well below the 65% threshold. The payout ratio has generally been on a consistent stretch, with only a few years seeing significant increases, such as in 2019 when the payout ratio was 72.29%. However, deviations like this are balanced by the subsequent return to lower payout ratios, indicating strategic financial management. This low average payout ratio suggests that Lowe's has ample room to grow its dividends while maintaining sufficient earnings to reinvest in the company or cover unforeseen expenses, reflecting positively on the company’s dividend sustainability and overall financial health.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings, meaning a company generates enough profit to comfortably pay its dividend. A high coverage ratio suggests that dividends are sustainable, whereas a low ratio could mean potential cutoffs in regimes with tighter earnings.

Over the years from 2003 to 2023, Lowe's has held a dividend coverage ratio—that is, earnings per share (EPS) divided by dividend per share—that fluctuates but generally decreased after peaking in 2010. For instance, in 2003, the ratio was about 0.057, and it increased until 2006 when it reached 0.093. After peaking in 2010 at approximately 0.328, it generally declined but spiked in 2019 at around 0.723 before dropping again. As of 2023, the ratio stands at around 0.420. This variability suggests that while Lowe's has had strong periods of dividend coverage, recent declines could signal caution for investors, indicating that earnings growth isn't proportionally keeping up with dividend increases. When earnings are below the dividend, payout sustainability is endangered. However, even at the lower range of 0.42 in 2023, the coverage isn’t alarmingly poor, implying some degree of caution is warranted but not necessarily a prediction of an imminent cut-off.

Dividends Well Covered by Cash Flow?

Explain the criterion for Lowes Companies (LOW) and why it is important to consider

Dividends well covered by cash flow indicate that financial obligations towards dividend payments can be met comfortably out of the company’s liquidity from normal business operations. This reduces the need for external financing or incurring debt.

Stable Dividends Since the Company Began Paying Dividends?

Dividend stability over the past 20 years is crucial for income-focused investors as it indicates reliability in earnings distribution. A drop of more than 20% would signify potential problems.

The data indicates that Lowes Companies (LOW) has consistently increased its dividend per share from $0.0525 in 2003 to $4.3 in 2023. There have been no reductions greater than 20% in any given year. This steady increase shows a positive and stable trend, making it attractive to income-seeking investors.

Dividends Paid for Over 25 Years?

This criterion checks if Lowes Companies (LOW) has consistently paid dividends for at least 25 years. This is crucial for assessing the company's reliability and commitment to returning value to shareholders over the long term.

Lowes Companies (LOW) has paid consistent dividends for over 25 years, with data provided from 1998 to 2023. The dividend per share has increased from $0.0838 in 1998 to $4.3 in 2023. This indicates a strong and consistent commitment to returning value to shareholders. The trend is highly positive and shows the company’s profitability and financial stability over an extended period. Such a long history of dividend payments is a good indicator of LOW's financial health and its reliability as a dividend-paying stock.

Reliable Stock Repurchases Over the Past 20 Years?

Discussing reliable stock repurchases is crucially important because it signifies a company's commitment to returning value to shareholders, enhances earnings per share (EPS) by reducing the number of shares outstanding, and indicates a company’s confidence in its own financial health and future prospects.

Over the past two decades, Lowes Companies, Inc. (LOW) has consistently decreased its number of shares from 1.59 billion in 2003 to 629 million in 2023. This consistent reduction, reflected in 18 out of 20 years of share repurchases, confirms Lowes' reliable commitment to buybacks. The average yearly repurchase rate of approximately -4.48% further underscores this trend. Such significant stock repurchasing indicates a responsible capital return strategy, likely suggesting robust financial health and management's optimism about future profitability, thus making this a positive trend for investors.