All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Lowe's in Focus
Headquartered in Mooresville, Lowe's (LOW) is a Retail-Wholesale stock that has seen a price change of -10.65% so far this year. The home improvement retailer is paying out a dividend of $1.15 per share at the moment, with a dividend yield of 2.09% compared to the Retail - Home Furnishings industry's yield of 1.27% and the S&P 500's yield of 1.66%.
In terms of dividend growth, the company's current annualized dividend of $4.60 is up 1.1% from last year. In the past five-year period, Lowe's has increased its dividend 5 times on a year-over-year basis for an average annual increase of 20.25%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Lowe's's current payout ratio is 38%. This means it paid out 38% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for LOW for this fiscal year. The Zacks Consensus Estimate for 2025 is $12.28 per share, which represents a year-over-year growth rate of 2.33%.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, LOW is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Lowe's Companies, Inc. (LOW): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
