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Lowe's Companies, Inc. (LOW), together with its subsidiaries, operates as a home improvement retailer. It offers a range of products for maintenance, repair, remodeling, and home decorating. The company is one of only 13 companies in the world that has increased dividends for at least 50 years in a row.

The company's last dividend increase was in June 2012, when the Board of Directors approved a 14.30% increase to 16 cents/share. Home Depot (HD) is the company's largest competitor.

Over the past decade this dividend growth stock has delivered an annualized total return of 4.10% to its shareholders.

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The company has managed to generate a 5% average increase in annual EPS since 2003. Analysts expect Lowe's to earn $1.65 per share in 2013 and $2.01 per share in 2014. In comparison, the company earned $1.44/share in 2012.

The company has reduced its share count from 1562 million shares in 2003 to 1177 million in 2012.

The future growth for Lowe's could come from international expansion, increased spending on home renovations, increase in the number of U.S. stores, and aggressive share repurchases. It currently has 31 stores in Canada, and opened its first two stores in Mexico in 2011. In addition, it has a joint venture with Woolworths, where it has seven stores under the Masters brand. The venture plans to open 15- 20 new stores in 2012.

While the housing market still appears to be soft, the bottom has likely been hit. The market for home improvements is expected to grow by 5% annually over the next five years. With over 66% of the U.S. population owning their homes -- which is above historical averages -- there seems to be a lot of home projects that would see homeowners going to places like Lowe's and Home Depot. Research shows that renovations tend to accelerate for homes older than 25 years. According to the latest Census, 69% of homes in the U.S. were built more than 25 years ago. As a result, a strong demographic factor is the high level of home ownership in the U.S., coupled with aging of homes. In addition to that, people are much more likely to participate in do-it-yourself home renovation and upkeep projects during a crisis, in order to try to increase the value of their home, to make it more marketable, or just to make it a better place to live.

Lowe's return on equity has decreased by half from 21.40% in 2006 to 10.60% in 2012. As earnings rebound over the next two years, I expect ROE to increase to upper teens. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 29.60% per year over the past decade, which is much higher than the growth in EPS. This was achieved mainly through the rapid expansion in the dividend payout ratio.

A 30% growth in distributions translates into the dividend payment doubling almost every two and a half years. If we look at historical data going as far back as 1983, we see that Lowe's has actually managed to double its dividend every five years on average.

The dividend payout ratio has increased from 5% in 2003 to 37% in 2012. A lower payout is always a plus, since it leaves room for consistent dividend growth, minimizing the impact of short-term fluctuations in earnings.

Currently, Lowe's is slightly overvalued, trading at 22 times earnings and yielding 2%. I would consider adding to my position in the stock on dips below $25.60/share.

Source: Lowe's Dividend Stock Analysis