Lowe’s Companies, Inc. (NYSE:LOW) runs a resilient business, thanks to its wide network of stores, strong customer relationships, and a growing focus on professional contractors. The company’s long history of dividend payments adds to its appeal. Find out the company’s ranking on our blue-chip dividend stocks list.
Still, it is important for investors to look past just the dividend track record and consider whether the current share price offers a good return for the risk taken.
In the second quarter of fiscal 2026, Lowe’s posted sales of $26.0 billion, compared to $24.0 billion in the same period last year. Comparable sales were up only slightly, rising 0.2%. Adjusted diluted earnings per share (EPS) came in at $4.40, a 1.6% increase. Online sales performed strongly, up 15.7%. However, ongoing weakness in DIY spending held back overall growth.
Management now forecasts fiscal 2026 sales of $92 billion and adjusted EPS of $12.25. This is lower than the previous guidance of $12.25 to $12.75 per share. The reduced outlook highlights the need for Lowe’s to focus on maintaining margins, growing its professional customer base, and operating efficiently, rather than relying on a quick rebound in consumer demand.
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A Valuation Discount Is Not the Same as a Bargain
Lowe’s Companies, Inc. has a forward P/E ratio of 15.60 and a trailing P/E of 16.42. This forward P/E translates to an earnings yield of about 6.4%. The lower forward P/E points to an expectation of earnings growth, but the difference between the two ratios is relatively small.
Lowe’s forward P/E has come down from the range of 18 to 20 in recent years. It also trades at a lower valuation than Home Depot, which had a forward P/E of about 19.76 in early October. This discount in valuation is noteworthy, but it mostly reflects the company’s more cautious outlook rather than an undervaluation by the market. Read the comparison here: Home Depot (HD) vs. Lowe’s (LOW): Which Is the Better Stock to Buy?
Comparing Lowe’s earnings yield with bonds also calls for caution. The 10-year US Treasury yield was recently around 5.2%, so Lowe’s forward earnings yield is only about 1.2 percentage points higher. While corporate earnings can grow over time, they can also decline, and the earnings yield does not guarantee a steady return. Investors should consider whether Lowe’s growth prospects and dividend are enough to make up for the extra risk compared to bonds.
A Covered Dividend With Limited Income Appeal
In May 2026, Lowe’s increased its quarterly dividend by 4% to $1.25 per share, which amounts to $5 per year. This marks the company’s 64th straight year of raising its dividend, an impressive record that puts it among the Dividend Kings. Still, investors looking for faster dividend growth may find other Dividend Kings with higher growth rates more appealing. Find out here.
At a share price of about $189, the dividend yield is around 2.6%.With management’s fiscal 2026 diluted EPS guidance of $11.75, the annual dividend results in a payout ratio of about 43%. This provides a good earnings cushion, indicating the dividend should remain sustainable even if earnings growth slows. Lowe’s paid out $673 million in dividends in the latest quarter.
However, earnings coverage is just one part of the picture. Acquisitions, capital projects, debt payments, and share buybacks all require cash as well. Ongoing weakness in housing turnover, high borrowing costs, tariffs, and soft discretionary spending could limit Lowe’s ability to grow earnings or increase its dividend in the future.
Conclusion
Lowe’s Companies, Inc. provides a reasonable case for both income and growth, supported by a manageable payout ratio and a forward valuation lower than Home Depot’s. Still, limited earnings growth and a small premium over Treasury yields mean there is not a large margin of safety. The stock would become more attractive if earnings improved without hurting margins. For now, the valuation appears fair but not especially cheap.
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This article is originally published at Insider Monkey.
