Key Points
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Lowe’s has more than double the forward dividend yield of the S&P 500 and is one of the Dividend Kings.
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The continued housing market slowdown keeps affecting growth, but things could turn a corner.
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Patient investors can buy today for the yield and hold on to the stock for a potential multi-year comeback.
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With the S&P 500 currently yielding around 1.1%, income-focused investors may want to consider high-quality dividend stocks offering higher yields. Lowe’s Companies (NYSE: LOW) is such an example. With a forward dividend yield of around 2.3%, it yields more than twice that of this major market index.
That’s not all. It’s also one of the Dividend Kings, or stocks with more than 50 years of consecutive dividend growth. For 55 consecutive years, the home improvement retailer has raised its payout.
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Although continued sluggishness in the housing market remains a major issue for the company, at current prices, this may be one of the best blue chip dividend stocks to buy today.
Lowe’s and its dividend bona fides
Last May, Lowe’s implemented its latest dividend hike, increasing its quarterly payout 4%, from $1.20 to $1.25 per share. Admittedly, this represents a slowdown in dividend growth. Over the past three years, annual payout growth has averaged 6.4%, while over the last five years, it has averaged 15.6%.
This is largely due to the aforementioned housing-market-related headwind, which has, in turn, affected the company’s growth. Earnings have declined in recent years, with diluted EPS of $13.20 for the fiscal year ended January 2024, $12.23 for the fiscal year ended January 2025, and $11.85 for the fiscal year ended January 2026.
However, after this extended slump, better results may be just around the corner. Per analyst estimates, Lowe’s earnings could come in at $12.30 per share this fiscal year, and at nearly $13 for the fiscal year ending January 2028. Moreover, because Lowe’s has slowed the pace of its dividend increases, the company now has a fairly low payout ratio, the percentage of earnings allocated to dividends.
Lowe’s forward payout ratio is around 41%. For comparison, Lowe’s largest competitor, Home Depot, has a forward payout ratio of 65%, meaning less margin for error.
Stay for the rebound
Alongside a sustainable, growing dividend, Lowe’s has other strengths in its corner. The company continues its pivot toward the professional segment of the construction space through acquisitions such as last year’s purchase of Foundation Building Materials. Besides having a lower payout ratio than rival Home Depot, it also trades at a lower valuation, 16 times forward earnings, versus 21 times forward earnings for Lowe’s larger competitor.
That said, don’t ignore the risks still at hand. Optimism for Lowe’s shares may be rising again, as seen from the stock’s recent rally, but volatility could soon return. A further housing slump could, in turn, affect demand from both consumers and home improvement professionals. If the company experiences an earnings or guidance hiccup in the coming quarters, forget about a continued rally. Shares could pull back to prior lows.
However, even if the price action in Lowe’s remains underwhelming in the near future, its low payout ratio suggests minimal risk of a dividend cut. Additional dividend growth, albeit at the recent modest pace, could carry on into next year.
Yet even if a rebound is years in the making, this may still make for a great holding for patient income investors. You can buy now for the yield and growth, then sit back and wait for a potential rebound.
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Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Lowe’s Companies. The Motley Fool has a disclosure policy.
