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Lowe's: Investors Are Confident before Its 1Q17 Earnings

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Part 5
Lowe's: Investors Are Confident before Its 1Q17 Earnings PART 5 OF 7

What to Expect from Lowe’s 1Q17 Dividends

Importance of dividends

Dividends smooth out volatility in returns, especially for cyclical companies in the home improvement sector. Home improvement retailers’ sales are greatly impacted by the economy’s health and other macro factors.

What to Expect from Lowe&#8217;s 1Q17 Dividends

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1Q17 estimates

Analysts expect Lowe’s (LOW) to pay dividends of $0.33—a fall of 5.7% from $0.35 in 4Q16. The company paid 4Q16 dividends at a yield of 1.6% and at a payout ratio of 30.2%. For 2017, analysts expect Lowe’s to pay dividends of $1.56—growth of 17.3% from $1.33 in 2016.

Lowe’s forward dividend yield is hovering around 1.7%—compared to 2.2% for Home Depot (HD), 2.8% for Williams-Sonoma (WSM), and 1.4% for Bed Bath & Beyond (BBBY).

Capital allocation

Apart from paying dividends, Lowe’s also rewards its shareholders through share repurchases. On March 20, 2015, the company’s management authorized a share repurchase program of $5.0 billion. On January 27, 2017, management authorized another share repurchase program of $5.0 billion. From the beginning of 2Q16 until the end of 4Q16, the company repurchased shares worth $2.3 billion. By the end of 4Q16, the company had $5.1 billion under its share repurchase program—$3.5 billion is expected to be utilized in 2017 for share repurchases.

Next, we’ll look at Lowe’s valuation multiple.

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