Lowe's (LOW); a solid stock for the Dividend Growth Investor

print

Lowe's (LOW); a solid stock for the Dividend Growth Investor

Published Date: 2018-05-24 | Source: Share Picks USA | Author: Bruce Ingram | Comments

Lowe's (LOW); a solid stock for the Dividend Growth Investor

Lowe's is the world's largest Home Improvement Company with stores in the USA, Canada and Mexico. Countries with a strong DIY culture. The company was founded in 1946. It has 2,390 home improvement and hardware stores.

It has annual sales of over $68 billion and a market cap of $71 billion

The company is renowned for being a One Stop Shop for both DIY customers as well as professional contractors. Each store typically carries over 35,000 products.

Currently 70% of sales are through retail customers and 30% through contractors.

The company has strong customer focus and provides excellent service. Because of their huge buying power with suppliers they are also price competitive. Their stores are in prominent locations. Smaller competitors struggle to compete against Lowe's giving them a strong moat. Home Depot is the main competitor to Lowe's.

In 2017 Amazon announced that it was acquiring Sears appliances, resulting in Lowe's share price dropping. The risk of Amazon having an impact on Lowe's business is quite low. Lowe's has its own online sales site. However, their experience is that 60% of users of the online store still collect their goods in store. DIY customers still like to go to the store to look and feel the products which is difficult to do online. For example, paint colours, cabinet shapes and sizes, types of flooring etc. are difficult to choose online. Also Lowe's excellent technical advice is difficult to replicate online. However, the company does continue to invest heavily into growing its own e-commerce capability to remain competitive against the Amazon threat.

The US housing market is in a growth phase which will add to Lowe's top line growth. The company is expecting to grow its operating margin over the next three years due to increased automation in distribution centres as well as other cost saving initiatives.

The company is also investing in acquisitions that will allow it to better serve the professional contractor.

An image of Lowes in store

Lowe's is going to spend about $10 billion in share buy backs over the next two years as well as targeting 15% EPS growth. This should result in a healthy increase in dividend pay-out.

The current share price is close to $90.

Lowe's currently pays a dividend of 1.88% Because of their low pay-out ratio the dividend is very safe and could grow at a faster rate if management should so decide. Their dividend has grown 19% last year and 20% for the last 20 years. The dividend has increased for 55 consecutive years

The company has an A- credit rating. Debt is on the high side at Debt to Capital ratio of about 70%.

I believe the company is currently slightly undervalued. Their current PE ratio is below their average PE ratio for the last 7 years.

Based on forecast growth and maintaining average P/E of 21.5 Lowe's could be expected to provide an annual ROR of more than 20% for the next 2,5 to 3 years


Disclaimer: Please note that I am not a Registered Financial Planner. The articles I write are based on my own personal research and for my own use and is not to be construed as financial planning advice. At all times readers are urged to exercise caution when investing in any financial instruments, to do their own research

invest in shares
An image of Lowe logo


...back to Share Picks USA




Similar Stories