Many people recognize Lowe's (NYSE: LOW) as a major home improvement retailer, but it's also built an impressive track record as a dividend payer. In fact, the company has raised dividends annually for more than half a century, making it a Dividend King.
That makes the stock a good company to analyze if you're looking for dividends. Calculating how much you can earn from the payments can prove useful in making investment decisions. You can also figure out how many shares you'd need to own to earn a targeted income.
How many shares of Lowe's do you need to own to bring in $500 in annual dividends?
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Calculating dividends
Earlier this year, Lowe's raised its quarterly dividend by 4.5% to $1.15 a share. That works out to $4.60 a year.
Dividing $500 by $4.60 equals 109 shares. With the stock trading at $272.05 a share as of Dec. 2, you'll have to invest about $29,650 to receive the $500 in yearly dividends.
This is a fairly conservative calculation and assumes dividends remain constant, but Lowe's has a long history of increasing them. That means you'll likely receive more than $500 annually as time goes on.
This would become an academic exercise if the company didn't have the means to continue increasing dividends. Fortunately, Lowe's generates more-than-enough free cash flow (FCF) to support the payments. During the first nine months of the year, the company had FCF of $7.3 billion and paid dividends of $1.9 billion.
The stock has a 1.7% dividend yield, higher than the S&P 500's 1.2%.
Lowe's seems like a good choice for dividend investors. It has built a long track record of regularly increasing payments and has the FCF to continue that practice.
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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
