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Lowe's Entices Investors With 9% Hike in Quarterly Dividend

Zacks Equity Research
·3 min read

Lowe's Companies, Inc. LOW remains keen on maximizing its shareholder value, as evident from its recent dividend hike of about 9% from its prior payout of 55 cents a share. The move came after the company impressed investors with a stellar second-quarter fiscal 2020 performance last week. Results benefited from strength in its retail-fundamentals strategy with a robust online business.

Notably, Lowe's has a long history of regular reliable dividends since 1961 when the company went public. The increased dividend of 60 cents a share, which is payable on Nov 4, 2020 to shareholders of record as on Oct 21, brings third-quarter payout to roughly $455 million. The new dividend translates into an annual dividend of $2.40 per share, versus the prior rate of $2.20 per share. Based on its share price of $161.72 on Aug 21, the increased dividend mirrors a dividend yield of 1.5%.

Lowe’s looks well placed on the dividend-payout front. During second-quarter fiscal 2020, management paid a quarterly dividend of 55 cents a share. The company currently has a dividend payout of 28%, dividend yield of 1.4% and free cash flow yield of 9%. With an annual free cash flow return on investment of 21.8%, the dividend payment is likely to be sustainable. We note that the company has been strategically investing in its business and is targeting a 35% dividend payout.

Lowe's Performance

Over the course of a year, Lowe’s shares have surged 52% and outperformed the industry’s 35.7% rally. The solid run on bourses is attributed to the company’s sturdy performance in the first half of fiscal 2020. In fiscal second quarter, earnings and sales outpaced the Zacks Consensus Estimate and grew year over year. Notably, the company delivered its fifth-straight earnings beat and the second-consecutive sales surprise in the quarter.

During fiscal second quarter, the company saw comparable-sales growth of over 20% across all its merchandising divisions, while all the U.S. geographic regions posted comparable-sales increase of at least 30%. Moving ahead, sales momentum continued in August, with strength in both the DIY and pro customers. Moreover, sales at lowes.com increased 135% in the quarter, up from a jump of 80% in the first quarter. We expect the company to continue benefiting from its strategic endeavors alongside home-improvement projects, and strength in pro and DIY segments.

More Solid Retail Bets

Big Lots BIG has an expected long-term earnings growth rate of 7.1% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General DG, also a Zacks Rank #1 stock, has a long term earnings growth rate of 12.5%.

Sprouts Farmers Market SFM has an expected long-term earnings growth rate of 9.2% and a Zacks Rank #2 (Buy).

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Big Lots, Inc. (BIG) : Free Stock Analysis Report
 
Dollar General Corporation (DG) : Free Stock Analysis Report
 
Lowes Companies, Inc. (LOW) : Free Stock Analysis Report
 
Sprouts Farmers Market, Inc. (SFM) : Free Stock Analysis Report
 
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Zacks Investment Research