The Dividend Kings are a group of 46 stocks that have each raised their dividends for at least 50 consecutive years, explains Bob Ciura, editor of Sure Dividend; here, he continues a review of his favorite investments among the Kings.

At Sure Dividend, we recommend investors in retirement take a closer look at high-quality dividend stocks. To narrow it down, we specifically favor stocks with long histories of increasing their dividends every year, such as the Dividend Kings.

Read The Top Dividend Kings, Part 1 — Tennant Company here…
Read The Top Dividend Kings, Part 2 — Leggett & Platt here…

Lowe’s Companies (LOW) is a Dividend King that has increased its dividend for over 50 years in a row. The stock has a long history of growth, a positive outlook ahead, and a high level of expected returns. These qualities make Lowe’s a top Dividend King today.

Business Overview & Recent Events

Lowe’s Companies is the second-largest home improvement retailer in the US (after Home Depot). The company operates or services about 2,200 home improvement and hardware stores in the U.S. and Canada.

In the most recent quarter, total sales for the second quarter came in at $27.5 billion compared to $27.6 billion in the same quarter a year ago. Comparable sales decreased 0.3%, while U.S. home improvement comparable sales increased 0.2%.

Of note, pro customer sales rose 13% year-over-year. Net earnings of $3.0 billion was in-line with results from Q2 2021. Diluted earnings per share of $4.67 was a 9.9% increase from $4.25 a year earlier.

The company remains in a strong liquidity position with $1.5 billion of cash and cash equivalents. The company reaffirmed their fiscal 2022 outlook and believes they can achieve diluted EPS in the range of $13.10 to $13.60 on total sales of roughly $98 billion.

Future growth will be driven by comparable sales growth, and new store openings in North America. The bottom line is under pressure from rising costs, but Lowe’s can offset this with top-line growth. In addition, Lowe’s buys back a lot of its own stock, which helps grow EPS. The company repurchased 21.6 million shares in the second quarter for $4.0 billion, and expects $12 billion in share buybacks for the full year.

Valuation & Expected Returns

Lowe’s has increased its dividend for 60 consecutive years, giving it one of the longest streaks of dividend hikes in the entire stock market. This extraordinarily strong track record, coupled with the fact that Lowe’s dividend payout ratio is quite low, shows that Lowe’s is a reliable and low-risk dividend stock where investors do not have to worry about a dividend cut. In addition, many years of dividend growth should be in front of the company.

Lowe’s business is somewhat cyclical, but Lowe’s enjoys competitive advantages from scale and brand power as it operates in a duopoly with Home Depot.

We expect Lowe’s will grow EPS by 6% per year over the next five years. In addition, the stock is undervalued, with a P/E of 14.5 against our fair value estimate of 19.5, which indicates the stock is significantly undervalued. Meanwhile, the stock has a current dividend yield of 2.2%.

Putting it all together, we expect total returns of 14.9% per year for Lowe’s, making it one of the top-ranked Dividend Kings for future expected returns.

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