Should You Buy Lowe's Companies, Inc. (NYSE:LOW) For Its Upcoming Dividend?

It looks like Lowe's Companies, Inc. (NYSE:LOW) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. In other words, investors can purchase Lowe's Companies' shares before the 23rd of April in order to be eligible for the dividend, which will be paid on the 7th of May.

The company's upcoming dividend is US$1.15 a share, following on from the last 12 months, when the company distributed a total of US$4.60 per share to shareholders. Calculating the last year's worth of payments shows that Lowe's Companies has a trailing yield of 2.1% on the current share price of US$219.00. If you buy this business for its dividend, you should have an idea of whether Lowe's Companies's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Lowe's Companies paying out a modest 37% of its earnings. A useful secondary check can be to evaluate whether Lowe's Companies generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 33% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Lowe's Companies's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Check out our latest analysis for Lowe's Companies

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Lowe's Companies's earnings per share have risen 18% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Lowe's Companies has delivered 17% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Lowe's Companies worth buying for its dividend? Lowe's Companies has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Lowe's Companies looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Lowe's Companies has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Lowe's Companies (1 is a bit unpleasant!) that deserve your attention before investing in the shares.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.