We recently compiled a list of the 10 Best Dividend Growth Stocks to Buy and Hold in 2025. In this article, we are going to take a look at where Lowe’s Companies, Inc. (NYSE:LOW) stands against the other dividend growth stocks.

Dividend stocks had a challenging year in 2024 as investor interest largely shifted toward technology stocks. The Dividend Aristocrat Index, which monitors companies with at least 25 years of consecutive dividend growth, rose by just over 5% year-to-date, significantly trailing the nearly 26% return of the broader market. This underperformance isn’t unusual for dividend stocks, which often struggle to compete for attention against more dynamic market options. However, seasoned investors may recognize the enduring value and potential of dividend stocks over the long term.

Also read: 8 Best German Dividend Stocks To Invest In

Historically, dividends have played a significant role in the total returns of US stocks, accounting for nearly one-third of overall equity returns since 1926. Between 1980 and 2019, a period marked by declining interest rates, dividends contributed 75% to the broader market’s return. In an environment of falling interest rates, dividends become even more valuable by providing a steady cash flow when fixed-income investments may offer lower yields. Companies that initiate dividends rarely stop paying them and often increase payouts over time. In addition, offering a dividend can enhance a stock’s appeal to investors, potentially boosting its market value.

According to a report by Franklin Templeton, over the last decade, dividends for the broader market index have consistently increased, with an average annual growth rate of just over 7%. In favorable market conditions, dividends have boosted total returns. During challenging years, such as 2020 and 2022, when returns were low or negative, dividends played a more significant role in total returns, offering stability and strengthening portfolio resilience.

This resilience of dividend stocks is rooted in the robust financial health and strong balance sheets of the companies behind them. Analysts emphasize the importance of targeting high-quality dividend-paying firms when investing in this category. Ramona Persaud, who manages the Fidelity Equity-Income Fund and Fidelity Global Equity Income Fund, shares this perspective. She prioritizes investments in well-established companies with solid dividends and attractive valuations. Persaud noted that falling interest rates often create favorable conditions for dividend stocks, as their yields become more appealing compared to declining bond yields. She also highlighted that lower rates could broaden market gains, unlike the past two years, where growth was dominated by a small number of large-cap stocks. Here are some other comments from the analyst:

“Ideally, I look for a stock that has a combination of these factors. I can’t always get all 3, so I look for a good balance of them. If I can get higher quality at a cheaper price, and the company pays a compelling dividend, that’s when a stock is really interesting to me.”

High-quality companies also provide the benefit of consistent dividend growth. Investors view dividends as a long-term commitment, so companies that pay them must maintain profitability, generate returns, and ensure steady cash flow. This makes dividends an important measure of a company’s overall quality. Firms that regularly raise their dividend payments show that they are consistently generating profits, which may indicate greater resilience during economic or market downturns.

Our Methodology:

For this article, we scanned the list of dividend aristocrats, which are the companies that have raised their payouts for 25 consecutive years or more. From that list, we picked 10 companies with the highest 5-year annual average dividend growth rates. The stocks are ranked in ascending order of their annual average dividend growth in the past five years. We also considered hedge fund sentiment around each stock in Insider Monkey’s database, as of the third quarter of 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 Annual Dividend Growth Rate: 16.9%

Lowe’s Companies, Inc. (NYSE:LOW) is an American retail company, specializing in home improvement. The stock has surged by over 11.5% in the past 12 months, grabbing investors’ attention. According to analysts, the continued demand for construction, repair, and remodeling supplies offers a strong basis for ongoing growth, as long as the company continues to prioritize customer needs. However, Lowe’s is currently experiencing the effects of a sluggish economy. In the most recent quarter, the company reported revenue of $20.17 billion, a decrease of almost 2% compared to the same period last year. Despite this, earnings slightly exceeded expectations, even excluding storm-related activity. Growth in Pro sales, strong online performance, and smaller outdoor DIY projects helped support the results.

Madison Investments also highlighted this in its Q3 2024 investor letter. Here is what the firm has to say:

“In the third quarter, the top five individual contributors to performance relative to the benchmark were Parker-Hannifin Corporation, Fiserv, Lowe’s Companies, Inc. (NYSE:LOW), Brookfield Corporation, and Progressive Corporation. Despite operating in very different sectors, Lowe’s Companies and Brookfield Corporation are both expected to benefit from the economic activity spurred on by declining interest rates. The Federal Reserve’s decision to lower interest rates sparked investor enthusiasm for both companies during the quarter, even as their sales and profits continue to moderate. For Lowe’s, sales remained weak in the latest quarter as most measures of the housing market remain sluggish. However, if interest rates come down and mortgages become more affordable, activity should return to the housing market which will boost Lowe’s business.”

Lowe’s Companies, Inc. (NYSE:LOW) is favored by income investors as the company holds a 59-year track record of consistent dividend growth. In addition, it has raised its payouts at an annual average rate of nearly 17% in the past five years, which makes LOW one of the best dividend aristocrat stocks on our list. Its quarterly dividend comes in at $1.15 per share for a dividend yield of 1.85%, as of December 29.

At the end of the third quarter of 2024, 60 hedge funds in Insider Monkey’s database owned stakes in Lowe’s Companies, Inc. (NYSE:LOW), falling from 62 in the previous quarter. The total value of these stakes is over $2.2 billion.

Overall LOW ranks 1st on our list of the best dividend growth stocks to buy and hold in 2025. While we acknowledge the potential of LOW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than LOW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock. 

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

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