Lowe's Hikes Dividend - Analyst Blog

Lowe's Companies, Inc. LOW is an intriguing option for investors seeking both growth and income. This home improvement retailer announced its decision of a dividend hike, reflecting its plan of utilizing free cash to enhance shareholders' return, thereby boosting investors' confidence in the stock.

This Mooresville, NC-based company raised its quarterly dividend by 27.8% to 23 cents (or 92 cents annually) from 18 cents a share (or 72 cents annually). The increased dividend will be paid on Aug 6, 2014, to stockholders of record as of Jul 23. The dividend yield, based on the new payout and the last closing market price, is approximately 2%. In May 2013, the company last increased its quarterly dividend by 12.5% to 18 cents.

Earlier, Lowe's arch rival, The Home Depot Inc. HD, had also raised its dividend by 21% to 47 cents. 

Dividend hikes not only enhance shareholder's return but raise the market value of the stock. Through this strategy, companies try to win investors, thereby persuading them to either buy or hold the scrip instead of selling it.

Investors always prefer an income-generating and a dividend-paying stock. People looking for regular income from stocks are most likely to be inclined toward those companies that have a track record of consistent and incremental dividend payment.

Other companies that recently increased quarterly dividends include Deere & Company DE and Joy Global Inc. JOY. The companies raised their dividends by 18% to 60 cents and 14% to 20 cents, respectively.

Lowe's currently holds a Zacks Rank #3 (Hold). We believe that the company remains well positioned to benefit from the housing market recovery, albeit at a slower pace. The company is closing underperforming stores and its strategy of enhancing customers' shopping experience and merchandising transformation is likely to help it generate incremental sales.