The Dividend Kings are the best-of-the-best in dividend longevity. These are stocks with 50 or more consecutive years of dividend increases, asserts growth and income expert Ben Reynolds, editor of Sure Dividend.
The Dividend Kings list is a great place to find dividend stock ideas. However, not all the stocks in the Dividend Kings list make a great investment at any given time.
The 5 stocks featured in this report are our top-ranked Dividend Kings today, based on expected annual returns through 2025. Stocks are ranked in order of lowest to highest expected annual returns. Total returns include a combination of future earnings-per-share growth, dividends, and any changes in the P/E multiple.
The first stock in our countdown is Lowe’s Companies (LOW) — the second-largest home improvement retailer in the US after Home Depot (HD). The company, which has a current market capitalization of $102 billion. Lowe’s operates nearly 2,000 home improvement and hardware stores in the U.S. and Canada.
Lowe’s reported first quarter results on May 20th, and recorded net earnings of $1.3 billion, compared to net earnings of $1.0 billion in the prior-year period. Diluted earnings per share increased 35% to $1.76, while adjusted earnings per share rose 45% to $1.71.
The company generated revenue of $19.7 billion, with comparable sales increasing 11.2%. Comparable sales in the U.S. increased 12.3% as it appears the stay-home COVID-19 pandemic may have resulted in many more home projects and renovations being taken on. Lowes.com sales increased 80% year-over-year as the retail landscape moves even more online.
Between 2010 and 2019 Lowe’s grew its earnings-per-share by 18.4% a year. Profits at the time were impacted by the financial crisis, though, which has resulted in a lows tarting base for Lowe’s earnings-per-share growth during that particular year.
Earnings-per-share growth is driven by comparable store sales growth, increasing margins, and the company’s share repurchases, which have lowered the share count meaningfully. Significant buybacks mean that the company’s net earnings are split over a lower number of shares, which accelerates growth in per-share net income.
Lowe’s business is somewhat cyclical, but the company performed relatively well during the last financial crisis,nevertheless. Earnings-per-share declined by less than 20%, despite the housing market hit. Lowe’s enjoys competitive advantages from scale and brand power as it operates in a duopoly with Home Depot.
Based on expected EPS of$6.60, Lowe’s stock trades for a P/E ratio of 23.3, above our fair value estimate of 20. A declining valuation multiple could reduce annual returns by 3% per year over the next five years.
However, this will be more than offset by 10% expected annual EPS growth, and the 1.4% dividend yield, leading to total expected returns of 8.4% per year.
