Updated on September 15th, 2023 by Nikolaos Sismanis
The Dividend Kings are considered the best-of-the-best when it comes to dividend growth stocks. There is good reason for this, as it is extremely difficult to become a Dividend King. That’s why there are only 50 of them out of the thousands of publicly-traded companies. To be a Dividend King, a company must raise its dividend each year for over 50 years.
You can see the full list of all 50 Dividend Kings here.
We have created a full list of all 50 Dividend Kings, along with important financial metrics such as price-to-earnings ratios and dividend yields. You can access the spreadsheet by clicking on the link below:
Increasing dividends for five decades is no easy task. A company must possess durable competitive advantages and an ability to outlast recessions. This explains why there are relatively few stocks that qualify as Dividend Kings.
One of them is home improvement retailer Lowe’s Companies (LOW), a Dividend King that has declared a cash dividend every quarter since going public in 1961.
Lowe’s stock has shown signs of recovery in 2023, benefiting from the alleviation of recession concerns. However, the stock has yet to reclaim its peak values from 2021 due to the persistent impact of elevated interest rates. Nevertheless, due to the company’s outstanding earnings and dividend growth history, we see very attractive total returns ahead.
Lowe’s traces its roots back to 1921 when LS Lowe founded a hardware store in North Wilkesboro, North Carolina. The company remained a single-store operation until 1949 when a second store was opened in Sparta, North Carolina. Since then, Lowe’s has grown to more than 2,200 stores in the US and Canada.
The company generates about $97 billion in annual revenue, with its 300,000 employees serving ~18 million customers every week.
Lowe’s has made its mark in the US with its 1,800+ stores by focusing on merchandising excellence, supply chain efficiency, operational efficiency, and engagement of customers. Lowe’s fell behind rival Home Depot (HD) in recent years as Home Depot focused on professional customers, building out digital capabilities, and an intense focus on the customer experience.
Lowe’s, for its part, has made necessary investments in recent years to close the gap.
It has also been able to successfully translate this success into Canada, which many retailers have tried to do without success. The company has a handful of banners it sells under in Canada and has tapped into a $35 billion home improvement market.
The current business environment remains strong for Lowe’s despite the constant headwind of supply chain issues many businesses are dealing with.
Lowe’s reported second-quarter earnings on August 22nd, 2023, and results were somewhat soft. Total sales for the second quarter came in at $25.0 billion compared to $27.5 billion in the same quarter a year ago. Comparable sales decreased 1.6%, and net earnings declined 2.4% year-over-year to $4.56 per share.
The company repurchased 10.1 million shares in the second quarter for $2.2 billion. Additionally, it paid out $624 million in dividends.
Lowe’s launched same-day delivery nationwide and expanded its rural merchandising framework to 300 stores. The company reaffirmed its fiscal 2023 outlook and believes it can achieve adjusted diluted EPS in the range of $13.20 to $13.60 on total sales of roughly $88 billion.
We expect $13.40 in earnings per share for this year.
We expect Lowe’s to continue generating strong sales and earnings growth for many years, with blips expected during recessionary periods.
Lowe’s has kept its store base fairly constant in recent years, as it appears the company is happy with the footprint it possesses at the moment. The number of markets Lowe’s can enter is somewhat limited by the massive size of the stores it operates, as small markets generally cannot support a Lowe’s store. However, despite this lack of footprint growth, Lowe’s has plenty of runway for additional earnings expansion.
One way Lowe’s expands its earnings is through strong comparable sales. The company has managed to produce positive same-store sales growth each year for the past decade.
Lowe’s has been able to grow through a variety of economic situations and changes in consumer spending habits, and we think that will continue. That said, the potential for sales declines exists for short periods during recessions.
The second growth driver for Lowe’s is margin expansion. Gross margins tend not to move much in the home improvement business, and Lowe’s is no exception. However, it has seen SG&A costs leveraged down over time as revenue has risen, and so long as comparable sales are rising, this should continue to be a tailwind.
Third, Lowe’s spends freely on share repurchases. The company repurchased $14.1 billion worth of stock in fiscal 2022. At its current rate, repurchases should surpass $10 billion this year as well. We expect Lowe’s to continue buying back stock in the years ahead, as the company has plenty of cash on hand and earnings strength to do so.
Combined, these factors should see Lowe’s grow earnings-per-share by 8% annually over the next five years.
Competitive Advantages and Recession Performance
Lowe’s main competitive advantage is one it shares with Home Depot; size and scale that affords it superior buying power over smaller rivals. Lowe’s and Home Depot operate a near-duopoly in the US, and thus, Lowe’s is competitively positioned by virtue of its scale.
Apart from that, Lowe’s has focused its energy in recent years on building out a customer base that is more durable and less cyclical. Pro customers are about one-quarter of revenue, and Lowe’s has gone after those customers aggressively to try and take share from Home Depot.
Pro customers tend to spend heavily throughout the year as they complete customer jobs and are, therefore, quite lucrative. Lowe’s continues to build digital tools and pro-only shopping experiences to lure this customer away from its main rival.
Lowe’s tends to be somewhat cyclical, given recessions generally result in lower discretionary spending and lower rates of construction. This recession is actually proving to be a boon for Lowe’s as consumers are spending more time in their homes than ever and, therefore, are spending to improve them.
We see the next recession as having the ability to be harsher to Lowe’s if it is accompanied by a slowdown in housing and commercial construction since those are huge drivers of revenue for Lowe’s.
Valuation and Expected Returns
We see Lowe’s producing $13.40 in earnings-per-share this year, so at the current price, Lowe’s stock trades for 17.2 times earnings. That is modestly lower than our estimate of fair value, which stands at 18.5 times. We, therefore, see a 1.4% tailwind from the valuation annually for the next five years.
The dividend yield stands at 1.9%, standing at the upper echelon of the range it has consistently occupied in recent years. This is attributable to the substantial share price decline suffered last year combined with the company’s consistent dividend increases.
The yield, combined with 8% estimated earnings-per-share growth and a tailwind from the valuation, should produce annual returns of around 11.3% over the next five years.
Lowe’s has an impressive track record of increasing its dividend each year, regardless of the state of the broader economy. Home improvement retail has continued to benefit from a strong housing market, although, with interest rates spiking to decade-highs, that tailwind has cooled of late. Still, we see the company’s growth outlook as robust, powered in no small part by its huge share repurchase program, while the valuation appears fair.
Lowe’s is not the cheapest stock around, but it is not unusual for the best businesses to command a higher valuation multiple. We see Lowe’s as a buy today for its world-class dividend history, low valuation, and 8% earnings growth projection.
The following databases of stocks contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors.
- The Dividend Aristocrats List: S&P 500 stocks with 25+ years of dividend increases.
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Best DRIP Stocks: The top 15 Dividend Aristocrats with no-fee dividend reinvestment plans.
- The High ROIC Stocks List: The top 10 stocks with high returns on invested capital.
- The High Beta Stocks List: The 100 stocks in the S&P 500 Index with the highest beta.
- The Low Beta Stocks List: The 100 stocks in the S&P 500 Index with the lowest beta.
- The Complete List of Russell 2000 Stocks
- The Complete List of NASDAQ-100 Stocks