Updated on February 18th, 2025 by Felix Martinez
Lowe’s Companies (LOW) has a highly impressive long-term dividend growth track record. The company has increased its dividend for over 60 years in a row. This makes Lowe’s a rare dividend stock, even among the Dividend Aristocrats, as the company qualifies for Dividend King status thanks to more than 5 decades of annual dividend increases.
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In addition to being a Dividend Aristocrat, Lowe’s is on the exclusive list of Dividend Kings, which have raised their dividends for an amazing 50+ years in a row. You can see the entire list of Dividend Kings here.
Lowe’s also is a high-growth dividend stock. This article will discuss Lowe’s’ business model, growth potential, and valuation.
Business Overview
Lowe’s was founded in 1946. In the nearly 80 years since, it has grown into the second-largest home improvement retailer, behind only The Home Depot (HD).
The company operates more than 1,700 stores in the U.S., Canada, and Mexico. Lowe’s offers a wide range of products, for maintenance, repair, remodeling, and decorating the home. It has a wide selection of leading national brands, as well as a large number of private brands.
Lowe’s reported third-quarter 2024 net earnings of $1.7 billion, with diluted earnings per share (EPS) of $2.99, compared to $3.06 in the same quarter last year. The results included a $54 million pre-tax gain from the 2022 sale of its Canadian retail business, boosting EPS by $0.10. Excluding this gain, adjusted diluted EPS was $2.89. Total sales declined slightly to $20.2 billion from $20.5 billion in the prior-year quarter, with comparable sales decreasing 1.1% due to lower demand for high-ticket DIY purchases, partially offset by storm-related sales and growth in Pro and online segments.
Despite the decline in comparable sales, Lowe’s performance was slightly better than expected, aided by strong demand in professional (Pro) services and smaller outdoor DIY projects. CEO Marvin Ellison highlighted the company’s resilience and expressed appreciation for employees and first responders assisting communities affected by Hurricanes Helene and Milton. As of November 1, 2024, Lowe’s operated 1,747 stores, covering 195.0 million square feet of retail space. The company remains focused on long-term shareholder value, repurchasing 2.9 million shares for $758 million and distributing $654 million in dividends during the quarter.
Lowe’s updated its full-year 2024 outlook, forecasting total sales between $83.0 billion and $83.5 billion, with comparable sales expected to decline by 3.0% to 3.5%, a slight improvement from previous estimates. The adjusted operating margin is projected at 12.3% to 12.4%, while net interest expense is expected to be around $1.3 billion. Adjusted diluted EPS is anticipated to range between $11.80 and $11.90. Capital expenditures for the year remain at approximately $2 billion. Lowe’s remains confident in its ability to navigate current market challenges and capitalize on future home improvement demand.
Source: Investor presentation
Growth Prospects
We believe that Lowe’s will deliver 8% annual earnings-per-share growth over the next five years. Lowe’s has a long runway of growth up ahead.
In recent years, Lowe’s has made a concerted effort to improve its customers’ in-store experience through merchandising and inventory practice optimization, as well as investing in the capabilities to fulfill orders outside of its stores.
This includes special features for Pro customers that drive recurring revenue and make it easier for DIY customers to order their products online, and pick them up or have them delivered. This is a strategic shift from the old model Lowe’s operated under, and it has worked well in recent years.
Lowe’s generally opens a small number of new stores each year, which is not a meaningful growth driver. However, it continues to find ways to capitalize on rising housing and construction spending, and we see these as growth drivers moving forward due to still relatively low mortgage rates, whether or not the store count rises.
The U.S. economy continues to grow, despite growth headwinds such as high inflation rates. Positive GDP growth is arguably the most important economic indicator for Lowe’s, as the company is highly reliant on consumer spending. The continued U.S. economic growth is a positive catalyst for Lowe’s.
Lowe’s has steadily been repurchasing shares on the open market in recent years. These buybacks shrink the company’s share count, translating into a growing portion of the overall profits generated for each remaining share.
Buybacks have been a major driver in the compelling earnings-per-share growth that Lowe’s enjoyed, and we believe the same will hold true in the future.
The combination of continued expansion in e-commerce, overall economic growth in the long run, and operating should drive Lowe’s profits. With the impact of buybacks added, we believe annual earnings-per-share growth of 8% is very much achievable.
Competitive Advantages & Recession Performance
The retail industry typically does not offer many competitive advantages. This is a highly challenging retail environment, as the rise of Amazon and other Internet retailers threatens to undercut brick-and-mortar stores. Consumers have shifted spending dollars toward e-commerce for the convenience and low prices.
However, Lowe’s is a specialty retailer, which gives it a competitive advantage. Home improvement projects are often complex. Consumers are willing to travel to stores, inspect products in person, and ask questions to staff members, which has helped protect home improvement retailers from Amazon (AMZN).
That said, Lowe’s is not immune from recessions. The consumer is at risk of declining during economic downturns. Lowe’s depends on a financially healthy consumer with solid housing and construction markets. The Great Recession was a particularly steep downturn that significantly affected Lowe’s bottom line.
Lowe’s earnings-per-share during the Great Recession are below:
- 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% increase)
Lowe’s earnings fell sharply during the recession, but the company remained profitable. This helped it continue increasing its dividend each year. And it bounced back reasonably quickly, as by 2013, Lowe’s earnings-per-share had surpassed 2007 levels.
Valuation & Expected Returns
Lowe’s is expected to generate adjusted EPS of $11.85 for 2024. As a result, the stock trades at a price-to-earnings ratio of 21.1. This is above our fair value estimate of 20, so we see the stock as slightly overvalued. A contracting price-to-earnings ratio could reduce future returns by approximately 1.0% per year for the next five years.
In addition to valuation changes, Lowe’s returns will consist of earnings growth and dividends.
We see annual earnings-per-share growth at 8% annually, plus the current 1.8% yield, offset somewhat by a declining valuation multiple. That would produce overall total annual returns of approximately 8.8%, which is an appealing potential rate of return.
The dividend payout ratio remains near 39% of earnings, so there is certainly plenty of room for additional dividend growth in the coming years.
Final Thoughts
Lowe’s has increased its dividend for 62 consecutive years. Although the current retail environment is challenging, Lowe’s operates in a niche that should withstand competitive threats from online retailers.
Lowe’s is still growing sales and earnings, which should allow for continued dividend growth. It also has a conservative dividend payout ratio, which supports high dividend increases. With a solid expected rate of return of under 10% per year, Lowe’s stock receives a hold rating at current prices.
Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Dividend Champions: Dividend stocks with 25+ years of dividend increases, including those that may not qualify as Dividend Aristocrats.
- The Dividend Achievers: dividend stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings: considered to be the ultimate dividend growth stocks, the Dividend Kings list is comprised of stocks with 50+ years of consecutive dividend increases
If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:
- The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.
- The Blue Chip Stocks List: this database contains stocks that qualify as either Dividend Achievers, Dividend Aristocrats, or Dividend Kings.