Lowe's Companies, Inc. (NYSE:LOW) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 21st of January in order to be eligible for this dividend, which will be paid on the 5th of February.
Lowe's Companies's next dividend payment will be US$0.55 per share, and in the last 12 months, the company paid a total of US$2.20 per share. Based on the last year's worth of payments, Lowe's Companies has a trailing yield of 1.8% on the current stock price of $119.52. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Lowe's Companies paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 70% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Lowe's Companies's earnings per share have risen 12% per annum over the last five years. Lowe's Companies is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Lowe's Companies has delivered an average of 21% per year annual increase in its dividend, based on the past ten years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Should investors buy Lowe's Companies for the upcoming dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Lowe's Companies's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 55% and 70% respectively. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Lowe's Companies's dividend merits.
Ever wonder what the future holds for Lowe's Companies? See what the 29 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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