We recently compiled a list of the 12 Best Dividend Stocks For Steady Growth. In this article, we are going to take a look at where Lowe’s Companies, Inc. (NYSE:LOW) stands against the other dividend stocks.

It’s well understood how crucial dividend growth stocks are for investors. Although dividend stocks have been moving at a slow pace recently, largely due to the AI stock boom, their long-term value remains undeniable. Investors appear to be increasingly drawn to dividend growth strategies, recognizing that the focus should now be on growth rather than just yield. The Dividend Aristocrat Index stands out as a strong investment opportunity, offering an average yield of about 2.4%, trading at roughly 23 times earnings, and projected to achieve an average annual earnings growth of 7% over the coming years.

Also read: 10 Best Dividend Aristocrats According to Wall Street Analysts

During the second quarter, US equity markets saw gains, driven by ongoing excitement around artificial intelligence technology, which led to a notable rise in growth stocks. Analysts believe that dividend-paying equities, supported by strong fundamentals, sustainable growth prospects, and solid balance sheets, are well-positioned to benefit from continued economic growth. The current market environment has somehow blurred the line between tech and dividend stocks, especially as major tech companies have introduced dividend policies this year. Whether these companies can continue to raise their payouts remains to be seen. However, the outlook for dividend growth appears promising. In the first quarter, US companies increased their cash reserves to a record $4.11 trillion, aided by a resilient economy and relatively high interest rates, which has accelerated the dividend growth process. According to S&P Dow Jones Indices, over 175 companies in the S&P 500 announced a dividend increase or initiated a dividend during the first half of 2024.

Another factor boosting the significance of dividend growth stocks is the upcoming Federal Reserve interest rate decision in September. Paul Baiocchi from SS&C ALPS Advisors considers this a prudent strategy, as he expects that the Fed will begin easing rates. The chief ETF strategist made the following comments while speaking at CNBC’s “ETF Edge”:

“Investors are moving back toward dividends out of money markets, out of fixed income, but also importantly toward leveraged companies that might be rewarded by a declining interest rate environment.”

He further said:

“You’re looking for dividends as part of the methodology, but you’re looking at dividends that are durable, dividends that have been growing, that are well supported by fundamentals.”

Various reports have indicated that while dividend growth companies may not deliver immediate rewards, they offer substantial long-term benefits. Nuveen, a financial planning firm based in Illinois, provided an optimistic outlook on dividend growth strategies this year, emphasizing their historical performance. The report suggested that companies focused on dividend growth possess valuable long-term characteristics and are well-positioned for strong relative performance in the year ahead. Over time, companies that consistently increase or initiate dividends have achieved higher annualized returns with lower volatility compared to other equity market segments. Although dividend growth companies may not outperform in every market environment, their robust risk-adjusted returns over extended periods make them an ideal foundation for any equity portfolio. With that, we will take a look at some of the best dividend stocks for steady dividend growth.

Our Methodology:

For this list, we screened for dividend stocks with a 5-year average dividend growth rate of above 10%. From that list, we picked stocks with dividend growth track record of at least 10 years. The stocks are ranked in ascending order of their annual average dividend growth in the past five years.

We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Lowe’s Companies, Inc. (NYSE:LOW)

5-Year Average Dividend Growth: 18.05%

Consecutive Years of Dividend Growth: 59

Lowe’s Companies, Inc. (NYSE:LOW) is a North Carolina-based retail company that specializes in home improvement. The stock has surged by over 14% since the start of 2024 despite facing some industry-related challenges this year. In addition, the company reported strong earnings in the second quarter of 2024. It demonstrated solid operational performance and enhanced customer service, even amid a difficult macroeconomic environment, particularly for homeowners. The momentum of the Total Home strategy is evident, as shown by the mid-single-digit growth in comparable sales with Pro customers this quarter. The company generates most of its revenue from DIY shoppers, but in the latest quarter, it noted a decline in demand for DIY projects as consumers are increasingly shifting their spending towards travel and dining out.

Lowe’s Companies, Inc. (NYSE:LOW) reported revenue of $23.6 billion in Q2 2024, down from 5.5% from the same period last year. The revenue also missed analysts’ estimates by $372.3 million. Comparable sales also declined by 5.1% on a YoY basis. That said, the management is confident in the recovery of its business as soon as the market conditions improve. Madison Investments also presented a positive outlook of the company in its Q2 2024 investor letter. Here is what the firm has to say:

“At home improvement retailer Lowe’s Companies, Inc. (NYSE:LOW), sales continue to be weak. The economic backdrop in housing is particularly interesting at the moment. On one hand, employment levels are healthy and home values remain resilient. On the other hand, housing turnover, which is essentially the number of homes that have been sold relative to the housing stock, is at historically low levels as homeowners are resistant to giving up low mortgage rates on their current home for a higher rate on a new home. Housing turnover is an important business driver for Lowe’s, so the depressed level of activity has weighed on its profits. However, over time we expect it to normalize and Lowe’s performance to improve.”

Although Lowe’s Companies, Inc. (NYSE:LOW) experienced a decline in revenue, its cash generation remained stable throughout the quarter. The company ended the quarter with over $4.3 billion in cash and cash equivalents, up from $3.5 billion in the same period last year. Its operating cash flow also grew to $7.4 billion, from $6 billion in the prior-year period. During the quarter, it also returned $629 million to shareholders through dividends.

Lowe’s Companies, Inc. (NYSE:LOW) currently offers a quarterly dividend of $1.15 per share, having raised it by 5% in May this year. This increase in its dividend stretched the company’s dividend growth streak to 59 years, which makes LOW one of the best dividend stocks for steady growth. Over the past five years, the company has raised its dividends at an annual average rate of over 18%. The stock’s dividend yield on August 23 came in at 1.84%.

At the end of June 2024, 62 hedge funds tracked by Insider Monkey held stakes in Lowe’s Companies, Inc. (NYSE:LOW), up from 60 a quarter earlier. These stakes have a total value of nearly $1.7 billion. With over 1 million shares, Soroban Capital Partners was the company’s largest stakeholder in Q2.

Overall LOW ranks 2nd on our list of the best dividend stocks for steady growth. While we acknowledge the potential of LOW as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than LOW but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

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Disclosure: None. This article is originally published at Insider Monkey.