Lowe's Companies, Inc. (NYSE:LOW) Passed Our Checks, And It's About To Pay A US$1.15 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Lowe's Companies, Inc. (NYSE:LOW) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Lowe's Companies investors that purchase the stock on or after the 23rd of October will not receive the dividend, which will be paid on the 6th of November.

The company's next dividend payment will be US$1.15 per share, on the back of last year when the company paid a total of US$4.60 to shareholders. Last year's total dividend payments show that Lowe's Companies has a trailing yield of 1.6% on the current share price of US$281.31. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Lowe's Companies has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Lowe's Companies

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Lowe's Companies's payout ratio is modest, at just 37% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 33% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Lowe's Companies's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Lowe's Companies's earnings have been skyrocketing, up 34% per annum for the past five years. Lowe's Companies is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Lowe's Companies has increased its dividend at approximately 20% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Lowe's Companies an attractive dividend stock, or better left on the shelf? We love that Lowe's Companies is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about Lowe's Companies, and we would prioritise taking a closer look at it.

In light of that, while Lowe's Companies has an appealing dividend, it's worth knowing the risks involved with this stock. Be aware that Lowe's Companies is showing 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.