Dividend Farming Scorecard: Lowe's (LOW)

Over the past year I’ve done more business with Lowe's than I planned due to upgrades needed on the house.  Since pending upgrades are likely to be purchased through Lowe's I decided to look at the firm as a possible add to the Dividend Farm.  May as well get some of my money back, right?

Below is a Scorecard for Lowe's as of market close on August 2, 2019.  The table provides a snapshot of factors I’m scoring for the firm.  I’ll be assessing how well Lowe's meets my targets as well as whether or not it provides a better investment fit than alternatives.

FACTOR	TARGET METRICS	LOW
CCC List	Champion	Champion
Current Yield	4.0%	1.9%
Company Profile	Red Flags?	Consumer Discretionary
Industry Leadership	Top 10	#7 in U.S.
Market Cap	$10 B+	$77.7 B
P/E	< 20	33.7
P/B	< 2	24.4
Debt / Equity	< 1	8.4
Dividend History (Years)	25	56
12 Month Price Range	Lower Half	Lower Half
Dividend Payout Ratio	< 75%	64.8%
Portfolio Weight	Under to Slightly Over	Slightly Over

CCC List: The DRIPinvesting.org web site provides the list of Champions, Contenders, and Challengers where I normally start.  Lowe's is a Dividend Champion with over a half century of dividend growth.  It’s a strong record, well above my 25 year minimum.

Current Yield:  Lowe’s yield is 1.9% which is below my desired target by more than half.  Although the long-term trend of dividend growth is in the high double digits, that trend would have to continue 5 more years to reach my target, assuming the stock price remains constant.

Company Profile:  Lowe's is a solid favorite for DIYers, contractors, and builders providing all manner of home and garden equipment, construction supplies, and know-how.  However, that also means its fortunes may fluctuate with the housing market.

Industry Leadership:  Lowe's is the #7 Consumer Discretionary firm in the U.S. by market capitalization per Motley Fool.

Market Capitalization:  With a market cap nearing $80 B, the firm is roughly 8 times my minimum target.  This is great for investment stability. 

Price to Earnings:  The trailing P/E is more than 60% above my maximum of 20.  Given the price, it would take 33 years of earnings at the current rate to get my money back.  I may not be around that long.  The price would need to dip considerably for that ratio to move into target range.  Alternatively earnings need to improve – a lot.

Price to Book:  The P/B ratio is more than 12 times my target.  I’m not paying $12 to get $1’s worth of assets. 

Debt to Equity:  Debt to equity is nearly 8x my max.  No thank you.   

Dividend History:  Growing dividends for 56 years is absolutely solid.  With minimum Champion range starting at 25 years, more than a half century of growth is beyond respectable for value investors like this Dividend Farmer.  Lowe’s dividend growth rate has been strong over the past decade but as noted earlier would need to continue that trend for another half decade to reach my target range. 

Price Range:  The price is in the lower half of its trailing 12-month (TTM) range.  That’s not exactly bargain territory, but it’s not terrible.  If the price sank to the bottom of its 52-week range it would do wonders for several unfavorable ratios but I think it’s unlikely to fall that much any time soon.

Payout Ratio:  The payout ratio of 64.8% is comfortably below my 75% target ceiling.  Lowe's has aggressively grown its dividend with room to run but the low starting point doesn’t help. 

Portfolio Distribution:  LOW would be a new holding in my basket adding to a somewhat overweight sector.  Adding LOW means getting a few pennies back on my home improvement projects, but I think there are better ways to offset those expenses.

Analysis  

Based on my experience with Lowe’s over the last year, I was hoping it would be a nice addition to the Dividend Farm.  However, the financial metrics aren’t close enough – even for government work – to be acceptable.  Based on my upcoming projects, I’m sure I’ll keep an eye on Lowe's, but I don’t expect my powder to remain dry in hopes things improve.

The thoughts expressed here are those of the author, who is not a financial professional.  Opinions should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.