Week #7LOW
Stock of the Week #7 — Lowe's Companies (LOW)
88Five-box test: ✓ Pays · ✓ Raises · ✓ Safe · ✓ Undervalued · ✓ Yield that matters
Week seven, another $100, and this time we're buying a company you've almost certainly walked into on a Saturday morning with a project half-formed in your head.
So far we've bought a rural-goods retailer (Tractor Supply), a medical-device maker (Medtronic), a monthly-paying landlord (Realty Income), an electric utility (NextEra), a snack-and-soda giant (PepsiCo), and the company that runs America's payroll (ADP). This week we add Lowe's Companies (LOW), the big orange half of the home-improvement duopoly, and it scored our highest mark yet.
Why Lowe's
Lowe's is a 54-year Dividend King. It has raised its dividend every single year for 54 straight years, one of the longest unbroken streaks in the entire market, through every housing boom and bust since 1972 and never once cut it.
The business is a near-duopoly with Home Depot, and that's the moat. Building a national big-box home-improvement chain (the stores, the distribution, the pro relationships, the brand) is enormously expensive and slow, so almost nobody tries. The two of them split the market, and Lowe's throws off predictable cash quarter after quarter from contractors and weekend DIYers alike.
The five boxes
- Pays: yes, 54 years without a cut.
- Raises: 54 straight years of increases. A Dividend King.
- Safe: about 42% of earnings paid out ($5.00 dividend on $11.83 in trailing EPS). That leaves nearly 60 cents of every profit dollar behind, an enormous cushion.
- Undervalued: today's yield sits about 33% above its own 5-year average, so it's meaningfully cheaper than usual. This is the box that makes the week.
- Yield that matters: about 2.37%. The honest weak spot, and the only box that isn't maxed.
Four boxes at full marks and one soft one, for a DividendAbundance Score of 88, Strong, tied for the best we've bought.
Why it's on sale
Here's the part that matters. A great business is only a great buy at the right price, and Lowe's is genuinely cheap right now, not just fallen.
Its dividend yields about 2.37% today. Over the past five years it has averaged about 1.79%. Since a stock's yield rises as its price falls, a yield running a third above its own norm means the price is running well below its norm. Lowe's is trading roughly a third cheaper than the market has typically valued it. That's the real thing, measured against its own history, not against some past high.
Why the discount? The market has gotten bored of home improvement. The pandemic renovation frenzy is long over, and high mortgage rates have frozen housing turnover, when people don't move, they start fewer big projects, so DIY spending has cooled. The market looks at soft near-term numbers and marks the whole company down.
But a slow year for renovations does not break a 54-year compounding machine. The country still has an aging, under-built housing stock that has to be maintained, and eventually rates ease and people move again. This is the same thesis behind Tractor Supply and PepsiCo and ADP: buy a wide-moat cash machine while the market is bored of it, and collect a rising dividend while you wait.
The one honest caveat
This is our second retailer, alongside Tractor Supply, so we're a little heavier in consumer-discretionary retail than in a perfect spread. But the two sell to different people for different reasons (rural farm-and-ranch versus suburban home improvement), so the overlap is looser than it looks.
And the yield, 2.37%, is below the 2.5% we usually like to see at entry. It's the lowest-scoring box here. We're accepting a slightly thinner starting yield in exchange for a King-quality balance sheet, a 42% payout with decades of room to grow, and a genuine discount to its own history. Growth helps close the gap: Lowe's raised the dividend about 8% in its most recent bump, down from the double-digit pace of years past but still well ahead of inflation.
The numbers on this week's buy
- Invested: $100.00
- Bought: 0.4749 shares at $210.55
- New annual dividend income added: about $2.37 per year
- Every dividend it pays flows into the next pick, so the income keeps compounding between our buys.
Seven weeks in, seven businesses, and the highest-scoring one yet was a Dividend King the market had simply stopped paying attention to. The running totals are on the portfolio page, and the home-page slider lets you drag through time to watch it compound.
That's week seven. We bought a 54-year King on sale, and we'll see you next week with pick number eight.
This is not financial advice. We're individual investors sharing our own approach and the reasoning behind our own real decisions, not licensed advisors. We own, or are buying, the stocks we write about in this series. Do your own research and consider speaking with a financial professional before investing. Dividend figures, yields, share counts, and prices are accurate to the best of our knowledge as of the publish date and will change over time.