We recently compiled a list of the 10 Best Dividend Kings to Buy for Safe Dividend 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.

Investors often closely track the fluctuations of the stock market, eagerly expecting price increases. However, they may overlook another significant source of returns: dividends paid by companies to their shareholders. This aspect becomes even more appealing when considering companies that have a track record of consistently increasing their dividends over time. That’s where Dividend Kings come into play. These companies have raised their payouts for at least 50 consecutive years, which is not as easy as it sounds. Hence, only 54 out of thousands of publicly traded companies in the US have managed to achieve this goal.

Dividend stocks have played an important role in the market’s overall returns historically. Dividends have accounted for 34% of the market’s returns on average from 1940 to 2023. Particularly, from the mid-1800s to the mid-1900s, these stocks were the primary factors driving stock returns along with earnings growth. Warren Buffett recognized the value of dividend growth stocks. In August 1994, his company acquired 400 million shares of Coca-Cola, valued at $1.3 billion. Initially receiving a $75 million cash dividend from Coca-Cola in 1994, this amount increased significantly to $704 million by 2022. Buffett foresaw the compounding benefits of his initial investment in Coca-Cola, understanding how dividends would enhance returns over time. He once said:

“By the end of that period, I wouldn’t be surprised to see our share of Coke’s annual earnings [the dividends paid] exceed 100% of what we paid for the business.”

ALSO READ: Warren Buffett’s 8 Best Dividend Stock Picks

Dividend growth stocks have been hitting on all cylinders over the years. The Dividend Aristocrats index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, has delivered impressive returns in the past, outperforming other asset classes despite fluctuating market conditions. ProShare highlighted the appeal of investing in this index, especially for income investors. The report noted that the index has consistently outperformed the broader market while maintaining lower market volatility since its inception. According to the report, an initial investment of $10,000 in May 2005 could have grown to over $61,000 by March 2023. In addition, the Dividend Aristocrats index surpassed the market in eight of the ten largest quarterly downturns since 2005. Recently, we covered the list of the 25 Best Dividend Aristocrats to Buy according to Street Analysts.

Although dividend growth stocks have delivered strong returns over the years, the challenge lies in maintaining purchasing power against inflation. High Yield Dividend Aristocrats index, tracking companies that have raised their payouts for at least 20 consecutive years, has grown its dividends at a rate that has surpassed inflation over the long term. The index generated an annualized return of 13.86% over the past 15 years, whereas the Consumer Price Index (CPI) returned 2.6% during this period. This shows how important dividend growth is in the grand scheme of things. In this article, we have discussed some of the best dividend kings that have shown solid dividend growth over the decades.

Our Methodology:

For this article, we scanned the list of dividend kings, which are the companies that have raised their payouts for 50 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 first 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 Average Annual Dividend Growth Rate: 18.05%

With a five-year average annual dividend growth rate of over 18%, Lowe’s Companies, Inc. (NYSE:LOW) tops our list of the best dividend kings for safe dividend growth. On May 31, the company announced a 5% hike in its quarterly dividend to $1.15 per share. This marked the company’s 60th consecutive year of dividend growth. The stock’s dividend yield on June 19 came in at 2.02%.

has an extensive network of stores and a robust online presence, which provides convenience to its customers. Analysts expect that the company will capitalize on increased consumer spending as the housing market rebounds in the coming months. Earlier this year, hedge fund manager Bill Ackman announced that his hedge fund, Pershing Square, had sold its stake in the company after it generated profits of over $1 billion. Ackman informed investors that Lowe’s had been a highly successful investment for Pershing Square, and he decided to liquidate the position after holding it for nearly six years in order to reallocate capital towards new opportunities.

Lowe’s Companies, Inc. (NYSE:LOW) has a forward P/E ratio of 18.90, which appears attractively valued, particularly when compared to its close peer, Home Depot Inc. (NYSE:HD), which is trading at a higher multiple of 23 times forward earnings. Aristotle Capital Management, LLC highlighted the stock’s valuation in its Q1 2024 investor letter:

“During the quarter, we sold our positions in Phillips 66 and Sysco and invested in two new positions: Lowe’s Companies, Inc. (NYSE:LOW) and TotalEnergies.

Based in North Carolina, and with a history dating back to 1921, Lowe’s Companies is the world’s second-largest home improvement retailer (after Home Depot). The company operates more than 1,700 stores in the United States that offer a wide variety of products to enhance a home, from plants for the garden and house décor to hardware and appliances. Often located in suburban areas, Lowe’s stores primarily serve retail “do-it-yourself” customers (~75% of revenue) and sell products that are used for home maintenance and repair (over 60% of revenue). This contrasts with Home Depot, whose stores have a higher presence in metropolitan areas and cater more to professional customers.

We had previously been investors in Home Depot. Over much of the past decade Home Depot had, in our opinion, executed better than Lowe’s—expanding its presence with large professional customers and increasing its store productivity. However, with Lowe’s hiring of former Home Depot executive Marvin Ellison in 2018, we believe Lowe’s has started the process of closing the gap to better compete with its nearest rival…” (Click here to read the full text)

Lowe’s Companies, Inc. (NYSE:LOW)’s shares were held by 60 hedge funds at the end of the first quarter of 2024, down from 68 funds in the previous quarter, as per Insider Monkey’s database. These stakes have a total value of over $2.44 billion.

Overall LOW ranks 1st on our list of the best dividend stocks to buy. You can visit 10 Best Dividend Kings to Buy for Safe Dividend Growth to see the other dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of LOW as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as LOW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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