Lowe’s (LOW) is Boosting Our Income by 17%
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Investing in dividend growth stocks can change your life. They are one of the best sustainable income stream tools available.
And while it can take several years to start earning any kind of significant income … once it does, you will be amazed at how it can grow.
For example, my wife and I will make around $2,400 in dividend income this year (2017). But it was only 6 years ago when we made 10% of that – $243.81 for the entire year.
It took years and years of investing new money into dividend stocks combined with dividend reinvestment and company dividend increases that grew our income. And we are still busy at growing it even more.
Most of the dividend income increase can be attributed to new investments. However, dividend reinvestment’s help build additional shares in the company’s you own. And let’s not forget about the annual raises these companies give out year after year.
One of our original dividend stocks we bought 6 years ago just gave us a double digit increase! Check out how Lowe’s (LOW) is increasing our income by 17% this year.
LOW Shareholders Get a 17% Raise
Lowe’s (LOW) recently announced an annual dividend increase.
Company shareholders will now receive $0.41 in quarterly dividends for each share they own … instead of $0.35 paid last quarter. This increase comes in well above our desired dividend growth rate of at least 6%.
The latest increase bumps the annual dividend for LOW up to $1.64 per share compared to $1.40 last year.
Overall, that is a 17.1% increase in dividend income.
When was the last time you got that kind of raise from your employer?
How Much Extra Income?
We currently own 25.4 shares of LOW in our Money Sprout Index.
This latest dividend increase has pushed our 12 month forward dividend income for LOW up to $41.66, compared to $35.56 last quarter.
That is an annual dividend income increase of $6.10 – which is a good increase for our portfolio. Add this increase to the other increases in the 30+ stocks we own and you are talking about a good amount of extra income.
This increase is simply a reminder that our dividend portfolio is constantly growing every single day … without any extra work from us.
Dividend Growth for LOW
We have owned shares of LOW for almost 6 years now … making it one of the first dividend growth stocks we invested in.
Overall, the company has shown the ability to maintain it’s dividend, at a very high growth rate.
Take a look at the annual dividend payments since 2011 –
- 2011 – $0.50
- 2012 – $0.60
- 2013 – $0.68
- 2014 – $0.82
- 2015 – $1.02
- 2016 – $1.26
- 2017 – $1.52 (projected)
Note – The 2017 dividend has been adjusted to reflect a dividend increase after the second quarter.
As you can tell from the numbers above, LOW dividends have been raised consistently over the past several years.
Typically, we look for stocks with a 5-year or 10-year dividend growth rate (DGR) of 6% or higher.
Lowe’s blows the 6% threshold out of the water for the 5 and 10 year DGR’s.
Here are a few average growth rates for shares of Lowe’s –
- 1 Year DGR – 20.63% (2016 to 2017)
- 3 Year DGR – 22.85% (2014 to 2017)
- 5 Year DGR – 20.50% (2012 to 2017)
- 6 Year DGR – 20.41% (2011 to 2017)
Note – We included the 6 Year DGR since that shows the growth rate since we originally purchased shares of this stock.
As you can see from the dividend growth averages above … the company has been increasing their dividend at a consistent rate for the past 6 years. They have been averaging a 20% dividend growth rate during that time, which is truly remarkable.
Because we have been holding our shares for 6 years now, we are earning an awesome yield on cost of 8.33%. When it comes to investing in dividend stocks … it doesn’t get much better than that!
LOW – Buy, Sell, or Hold?
Back in October 2011, we purchased 5.2 shares of Lowe’s for $19 per share. That $200 investment was the first of three purchases we made between October and December of that year.
Overall, we invested $500 in LOW stock for a total of 23.09 shares.
At the time of this writing, Lowe’s only accounts for a small percentage of the Money Sprout Index. It currently makes up 1.6% of our overall portfolio. Over time, I expect our assets to slowly grow in this dividend stock through dividend reinvestment and annual dividend increases.
Since our first purchase in the company, we have earned $124.77 in dividends from LOW.
Here are a few stats from owning stock in Lowe’s for the past 5+ years –
- Total Investment – $500.00
- Shares Purchased – 23.09
- Dividends Earned – $124.77
- DRiP Shares – 2.31
To date, we have earned back 25% of our original investment in dividends! Just let that sink in for a moment…
Just by simply collecting dividends for the past 5+ years … we have paid off 25% of our original investment. That is awesome! And we have seen the share price explode by over 300+% in that time. What a great investment this has been.
I think this is a great example of buy and hold for the long term when investing in dividend stocks.
What a cool feeling it is to earn back almost 25% of our original investment just in dividends on a stock that we don’t really pay that much attention to. And of course, all of those dividends over the years have been reinvested back into more shares of LOW stock to help accelerate our income.
At the time of this writing, LOW does NOT meet our stock screen criteria based on the following metrics –
- Current Yield – 2.06%
- Payout Ratio – 43.89%
- P/E Ratio – 24.69
The company has a payout ratio well below 60% which is great.
However, the P/E ratio is above the 20 threshold we look for at 24.69. And even with a 17%+ increase in dividends, the company still has a very low current yield at just above 2%.
Factoring in all these metrics for LOW, we have the company as a HOLD for our portfolio.
While LOW has been a piece of our dividend income foundation … there are better opportunities at this time.
If the share price of this home improvement company were to drop, then we may consider flipping this stock to a BUY. A nice decline in the price of this stock would send the yield up and the P/E ratio down.
We will also continue to hold our existing shares in Lowe’s and reinvest dividends each quarter to continue the slow growth. If at any time, the company were to cut their dividend, then we would sell our shares in the company – although I think that is highly unlikely.
Full Disclosure – At the time of this writing, we owned shares in the following stocks noted in this post – LOW. The material above is not a recommendation to buy. Please do your own research on a company before deciding to invest.