There's a common saying in the personal finance community: Cash is king. The thought process is that available cash can help an individual or a business through an emergency or a tough economy.
Well, if cash is king, cash flow is equally important. And you can bolster the cash flow making its way to your brokerage account by purchasing the highest-quality dividend payers. Thanks to its tremendous half-century-plus dividend growth streak, Lowe's (LOW +0.17%) fits this requirement in my opinion.
But is the stock a buy for dividend growth investors? Let's drill down into Lowe's fundamentals and valuation to answer this question.
NYSE: LOW
Key Data Points
Financial results continue to impress
With 1,700 stores serving around 17 million customer transactions each week in the U.S., Lowe's is the second-biggest player in the trillion-dollar North American home improvement retail market. For context, the company's $97.1 billion in net sales in its prior fiscal year followed Home Depot's (HD +0.13%) $157.4 billion in net sales for its previous fiscal year.
Lowe's recorded $22.4 billion in net sales during its fiscal fourth quarter ended Feb. 3, which works out to a 5.2% year-over-year growth rate. The company's total comparable sales contracted 1.5% in the quarter.
This was mostly the result of U.S. comparable transactions dropping 5.5% as do-it-yourself sales cooled. That dip couldn't be offset by 4.8% U.S. comp ticket growth stemming from product inflation and 10% higher sales to professional contractors. An 18% comparable sales decline in Canada due to an unfavorable exchange rate against the U.S. dollar and cheaper lumber prices were also in play for the quarter.
Lowe's non-GAAP (adjusted) diluted earnings per share (EPS) soared 28.1% over the year-ago period to $2.28 during the fiscal fourth quarter. Aside from a higher net sales base, this was driven by an astounding 10.4% reduction in Lowe's diluted share count from $14.1 billion of share repurchases executed last fiscal year.
Moving forward, Lowe's adjusted diluted EPS growth outlook remains solid. Analysts believe that the company's adjusted diluted EPS will compound at 8.8% annually over the next five years. For perspective, that is double the home improvement retail industry average earnings growth forecast of 4.4% for that period.
The above-average dividend should maintain huge growth
Lowe's offers the best of both worlds to its shareholders. The company's 2.1% dividend yield is above the S&P 500 index's average yield of 1.7%. At the same time, Lowe's quarterly dividend per share has skyrocketed more than 550% over the last 10 years to its current mark of $1.05.
LOW Dividend data by YCharts
What could be even better than these two bits of info? Well, Lowe's dividend payout ratio came in at less than 27% in its previous fiscal year. Since this gives the company the funds to invest in growth projects and debt repayment, the dividend is primed to keep growing at a healthy clip in the future.
An attractive valuation for a great business
As a result of the sell-off in the broader markets over the last year, shares of Lowe's shed 10% of their value. That pushed Lowe's forward price-to-earnings (P/E) ratio down to 13.3, which is significantly lower than the home improvement retail industry average forward P/E ratio of 16.1. This has made the stock too cheap to ignore, which is why Lowe's is a buy for dividend growth investors.