Investors focusing on a dividend growth investing strategy have performed better than some broader market indices, notes Prakash Kolli; here, the editor of Dividend Power begins a 3-part special report highlighting his favorite undervalued growth stocks.
The Dividend Aristocrats have declined 5.3% year-to-date, much better than the S&P 500 Index or the Nasdaq. The S&P 500 is down 13.1%, and the Nasdaq has decreased 22.9% and is in a bear market.
High-quality stocks paying an increasing dividend have arguably done well. However, investors are selling quality along with riskier stocks. Hence, they may want to take this opportunity to buy the dip. Below, we discuss 3 quality dividend growth stocks that are undervalued today.
Lowe’s (LOW) was founded in 1921 and today is one of the largest home improvement retailers in North America. The company has approximately 2,200 stores in the US and Canada. Lowe’s sells lumbar, hardware, appliances, flooring, lawn and garden items, lighting, plumbing, etc.
The company also provides services to consumers. The company sells leading national brands and well-known private label brands such as Allen + Roth, Kobalt, Harbor Breeze, Holiday Living, Stainmaster, Moxie, and Origin21.
The company generated $95,487 million of revenue in the last 12 months, of which around 75% is from retail consumers and about 25% is from professional contractors. Lowe’s has gained roughly 10% of the nearly $1 trillion home improvement market, placing it second after the market leader, Home Depot (HD).
Lowe’s continues to grow organically and by adding stores. The company benefits from new home construction because professional contractors buy more lumbar, plumbing, electrical, flooring, etc. However, rising mortgage rates usually slow new home construction, but extant homeowners tend to remodel and improve homes, benefitting Lowe’s sales. Furthermore, Lowe’s is profiting from sub-4% unemployment rates.
Lowe’s is well-known for its 60-years of dividend increases, placing it on the Dividend Kings list. The company is also a Dividend Aristocrat. The retailer is known for its high dividend growth rate of about 17.3% in the trailing 5-years and 18.8% in the past 10-years. The conservative payout ratio of 24% leaves room for more dividend increases. Currently, the forward dividend yield is approximately 1.64%, just below the average in the past 5-years of 1.73%.
Lowe’s stock price has been caught in the downward trend of the broader stock market with a ~22.4% year-to-date (YTD) decline. The forward price-to-earnings (P/E) ratio has decreased to about 14.4X.
