Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Lowe's in Focus

Headquartered in Mooresville, Lowe's (LOW) is a Retail-Wholesale stock that has seen a price change of -7.48% so far this year. Currently paying a dividend of $1.15 per share, the company has a dividend yield of 2.01%. In comparison, the Retail - Home Furnishings industry's yield is 1.13%, while the S&P 500's yield is 1.59%.

In terms of dividend growth, the company's current annualized dividend of $4.60 is up 1.1% from last year. Lowe's has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 20.25%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Lowe's's payout ratio is 38%, which means it paid out 38% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for LOW for this fiscal year. The Zacks Consensus Estimate for 2025 is $12.31 per share, which represents a year-over-year growth rate of 2.58%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, LOW is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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Lowe's Companies, Inc. (LOW) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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