Famous investors aren't all that different from investors who aren't well-known. They look for stocks that offer solid growth prospects. They don't want to pay too much for what they're getting. And, in many cases, they like to receive dividends.

Bill Ackman serves as a great example. The hedge fund billionaire focuses on growth and valuation. While many of his stocks don't pay dividends, some do. One especially stands out. Ackman owns nearly $1.5 billion of a Dividend King that's a household name.

Ackman's favorite Dividend King

We can know beyond a shadow of a doubt that Ackman's favorite Dividend King is Lowe's Companies (LOW -0.04%). The home improvement retailer certainly qualifies as a Dividend King as it has increased its dividend for over 50 consecutive years. Lowe's also happens to be the only Dividend King in Ackman's Pershing Square Capital Management portfolio. 

Ackman owns just eight stocks. Two of them are for the same company -- Alphabet Class A and Class C shares. None except Lowe's meet the threshold required to be included in the Dividend Kings list.

Ackman first initiated a stake in Lowe's in the second quarter of 2018. He reportedly agreed at the time with activist investor D.E. Shaw that Lowe's needed to step up its game in competing with The Home Depot.

Lowe's has been a part of Pershing Square's holdings ever since. Although Ackman sold over 3.3 million shares of Lowe's in 2023, Pershing Square still owns a stake in the home improvement giant worth close to $1.5 billion. The stock makes up 14% of the hedge fund's total portfolio.

The main arguments for and against Lowe's

One key reason to consider buying Lowe's stock now is its dividend. In addition to the stellar track record of dividend hikes, the company's dividend yield of nearly 2% isn't too shabby.

Many investors will also probably like Lowe's valuation. Shares currently trade at 16 times forward earnings. That's well below the average S&P 500 forward earnings multiple of 21.5.

Perhaps the best reason to buy Lowe's stock, though, is the company's growth prospects. The soaring inflation experienced in 2022 has moderated significantly, the Federal Reserve could cut interest rates later this year, and an improving macroeconomic outlook could boost home improvement spending.

Lowe's should also benefit from key tailwinds over the longer term. For example, the median age of U.S. homes is over 40 years. Homeownership rates are rising. That bodes well for the home improvement industry.

However, there are at least two major knocks against Lowe's. For one thing, it's still a distant No. 2 to The Home Depot in the home improvement market and competition in this market continues to be intense.

Lowe's is also a cyclical stock. When the economy falters, Lowe's shares can be hit especially hard. Investors who don't like volatility might not find Lowe's all that appealing.

Should you buy Lowe's stock, too?

It's seldom a good idea to buy a stock just because it's in a famous investor's portfolio. The dynamics that caused the investor to initiate a position in the stock could have changed significantly if it was first purchased several years ago, as is the case with Ackman's position in Lowe's.

However, I think that Lowe's is a good pick for many investors right now. In particular, income investors and those who are approaching retirement within the next 10 years could find the stock attractive. With the home improvement retailer's strong history of dividend increases, Lowe's could be a smart way to generate income and enjoy solid long-term growth.