Up to date on September twenty ninth, 2022 by Josh Arnold
The Dividend Kings are thought of the best-of-the-best relating to dividend progress shares. There may be good motive for this, as this can be very tough to turn out to be a Dividend King. That’s why there are solely 45 of them out of the 1000’s of publicly-traded firms. To be a Dividend King, an organization should increase its dividend annually for over 50 years.
You may see the total checklist of all 45 Dividend Kings right here.
We have now created a full checklist of all 45 Dividend Kings, together with vital monetary metrics similar to price-to-earnings ratios and dividend yields. You may entry the spreadsheet by clicking on the hyperlink beneath:
Growing dividends for 5 a long time is not any straightforward job. An organization should possess sturdy aggressive benefits and a capability to outlast recessions. This explains why there are comparatively few shares that qualify as Dividend Kings.
One in every of them is house enchancment retailer Lowe’s Firms (LOW), a Dividend King that has declared a money dividend each quarter since going public in 1961.
Lowe’s inventory has pulled again sharply in 2022 on rate of interest and recession fears. Given this, in addition to the corporate’s excellent earnings and dividend progress historical past, we see very engaging complete returns forward.
Enterprise Overview
Lowe’s traces its roots again to 1921, when LS Lowe based a ironmongery shop in North Wilkesboro, North Carolina. The corporate remained a single retailer operation till 1949, when a second retailer was opened in Sparta, North Carolina. Since then, Lowe’s has grown to greater than 2,200 shops within the US and Canada.
The corporate generates about $97 billion in annual income, with its 270,000 workers serving ~18 million clients each week.
Lowe’s has made its mark within the US with its 1,800+ shops by specializing in merchandising excellence, provide chain effectivity, operational effectivity, and engagement of shoppers. Lowe’s fell behind rival Residence Depot (HD) in recent times as Residence Depot targeted on skilled clients, constructing out digital capabilities, and an intense concentrate on the shopper expertise.
Lowe’s, for its half, has made mandatory investments in recent times to shut the hole.
It has additionally been capable of efficiently translate this success into Canada, which many retailers have tried to do with out success. The corporate has a handful of banners it sells below in Canada, and has tapped right into a $35 billion house enchancment market.
The present enterprise setting stays robust for Lowe’s regardless of the fixed headwind of provide chain points many companies are coping with.
Lowe’s reported second quarter earnings on August seventeenth, 2022, and outcomes have been considerably weak. Gross sales have been primarily flat year-over-year at $27.5 billion, as comparable gross sales declined 0.3%. Professional buyer gross sales have been the intense spot at +13%. Earnings got here to $3 billion, additionally roughly flat year-over-year. Nevertheless, earnings-per-share rose 10% to $4.67 because of share repurchases decreasing the float considerably. We anticipate $13.40 in earnings-per-share for this yr.
Supply: Infographic
We anticipate Lowe’s to proceed producing robust gross sales and earnings progress for a few years, with blips anticipated throughout recessionary durations.
Development Prospects
Lowe’s has stored its retailer base pretty fixed in recent times, because it seems the corporate is proud of the footprint it possesses in the mean time. The variety of markets Lowe’s can enter is considerably restricted by the huge dimension of the shops it operates, as small markets usually can not help a Lowe’s retailer. Nevertheless, regardless of this lack of footprint progress, Lowe’s has loads of runway for extra earnings enlargement.
A technique Lowe’s expands its earnings is thru robust comparable gross sales. The corporate has managed to provide constructive same-store gross sales progress annually for the previous decade.
Lowe’s has been capable of develop by quite a lot of financial conditions and modifications in shopper spending habits, and we expect that may proceed. That mentioned, the potential for gross sales declines exists for brief durations throughout recessions.
The second progress driver for Lowe’s is margin enlargement. Gross margins have a tendency to not transfer a lot within the house enchancment enterprise, and Lowe’s is not any exception. Nevertheless, it has seen SG&A prices leveraged down over time as income has risen, and as long as comparable gross sales are rising, this could proceed to be a tailwind.
Third, Lowe’s spends freely on share repurchases, and it expects to spend greater than $10 billion on repurchases this yr alone. We anticipate Lowe’s to proceed shopping for again inventory within the years forward, as the corporate has loads of money readily available and earnings power to take action.
Mixed, these elements ought to see Lowe’s develop earnings-per-share by 6% yearly over the following 5 years.
Aggressive Benefits and Recession Efficiency
Lowe’s essential aggressive benefit is one it shares with Residence Depot; dimension and scale that affords it superior shopping for energy over smaller rivals. Lowe’s and Residence Depot function a near-duopoly within the US, and thus, Lowe’s is competitively positioned by advantage of its scale.
Other than that, Lowe’s has targeted its vitality in recent times on constructing out a buyer base that’s extra sturdy and fewer cyclical. Professional clients are about one-quarter of income, and Lowe’s has gone after these clients aggressively to attempt to take share from Residence Depot.
Professional clients are likely to spend closely all year long as they full buyer jobs, and are due to this fact fairly profitable. Lowe’s continues to construct digital instruments and pro-only procuring experiences to lure this buyer away from its essential rival.
Lowe’s tends to be considerably cyclical given recessions usually end in decrease discretionary spending and decrease charges of building. This recession is definitely proving to be a boon for Lowe’s as customers are spending extra time of their houses than ever and due to this fact, are spending to enhance them.
We see the following recession as being able to be harsher to Lowe’s whether it is accompanied by a slowdown in housing and business building, since these are large drivers of income for Lowe’s.
Associated: Evaluation on the 9 greatest building shares.
Valuation and Anticipated Returns
We see Lowe’s producing $13.40 in earnings-per-share this yr, so on the present value, Lowe’s inventory trades for simply 14 occasions earnings. That’s far beneath our estimate of truthful worth, which stands at 19.5 occasions. We due to this fact see a virtually 7% tailwind from the valuation alone yearly for the following 5 years.
The dividend yield stands at 2.2%, which is way greater than it has been in recent times. That is attributable to the substantial share value decline suffered in 2022.
The yield, mixed with 6% estimated earnings-per-share progress and a tailwind from the valuation, ought to produce annual returns of practically 15% over the following 5 years.
Closing Ideas
Lowe’s has a formidable monitor file of accelerating its dividend annually, whatever the state of the broader financial system. Residence enchancment retail has continued to profit from a robust housing market, though with rates of interest spiking to decade-highs, that tailwind has cooled of late. Nonetheless, we see the corporate’s progress outlook as strong, powered in no small half by its large share repurchase program, and the valuation is extraordinarily engaging.
Lowe’s isn’t the most affordable inventory round, however it isn’t uncommon for the perfect companies to command the next valuation a number of. We see Lowe’s as a purchase at present for its world-class dividend historical past, low valuation, and 6% earnings progress projection.
Extra Studying
The next databases of shares include shares with very lengthy dividend or company histories, ripe for choice for dividend progress buyers.
Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to [email protected].