Dividend Increase | Lowe's Companies (LOW)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Lowe's for the dividend increase!

There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On August 21st the Board of Directors at Lowe's Companies (LOW) approved an increase in the quarterly dividend payment.  The dividend was increased from $0.55 up to $0.60.  That's an excellent 9.1% increase.  Lowe's is a Dividend Champion with 57 consecutive years of dividend growth.  Shares currently yield 1.45% based on the new annualized payout.

The new dividend will be payable November 4th to shareholders of record as of October 20th.  

Since I own 104.404 shares of Lowe's in my Rollover IRA, this raise increased my forward 12-month dividends by $20.88.  This is the 3rd dividend increase I've received from Lowe's since initiating a position in July 2017.  The total organic dividend growth rate from Lowe's over that time is 46%.

A full screen version of this chart can be found here.

Lowe's dividend history has been truly amazing.  Of the 40 periods dating back to 1980 year over year dividend growth has ranged from 1.3% to 62.5% with an average of 16.1% and a median of 9.7%.

Of the 36 rolling 5-year periods, annualized dividend growth has ranged from 6.3% to 45.4% with an average of 16.5% and a median of 12.8%.

Of the 31 rolling 10-year periods, annualized dividend growth has ranged from 6.9% to 31.1% with an average of 16.7% and a median of 17.1%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1980 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Lowe's 5-year average forward dividend yield is 1.86% which corresponds to a share price of $129 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%.  That gives a fair value range of $117 - $143 and suggests that Lowe's is trading above the upper end of it's fair value range.  You can check out my full analysis on Lowe' companies over at Seeking Alpha.

Wrap Up

This raise increased my forward dividends by $0.69 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my Rollover IRA's current yield of 2.13% this raise is like I invested an extra $979 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way. 

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

My FI Portfolio's forward-12 month dividends are $7,496.75.  Including my FolioFirst portfolio's forward dividends of $104.70 brings my total taxable accounts dividends to $7,601.45.  My Roth IRA's forward 12-month dividends are $658.06.  My Rollover IRA's forward dividends are $2,926.30.  Across all accounts I can expect to receive $11,185.81 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Lowe's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Lowe's?  Do you think shares are expensive or fairly valued at current levels?

Please share your thoughts below.