Who has the Tools to Build a Better Dividend? LOW or HD

Anyone else need a wheel barrel, shovel, tools, wood, a bunch of plants, and some dirt. I know, me to. This is the start for our next purchase. We do not own any retailers yet and this is another category we want to diversify into. With the growing trend of increasing house prices and more money flowing around, home improvement stores are a good way to go. And they have some protection from internet sales, because it would cost a lot to ship an 8 cubic foot wheel barrel, bags of dirt, plants, and people to talk to. And they major home improvement stores have great websites also.

So we have the category picked out, now we need to pick who is our best of breed. Our contest will go between Home Depot (HD) and Lowe’s (LOW). Home Depot (HD) P/S multiple is 1.9 and Lowe’s (LOW) is 1.1, making Lowe’s (LOW) much cheaper. They both have about the same dividend at 1.9%. Home Depot (HD) has about 1.5 times more sales than Lowe’s (LOW), making Home Depot (HD) bigger. While being bigger usually shows they had more success, at only 50% bigger, it is not a huge amount like another sectors. Such as Walmart (WMT) having about 6 more sales than Target (TGT).

However, as a dividend investor, there is one main category that I use the most: the number of years that a company pays and raised their dividend every year. Home Depot (HD) has 6 years of doing this. Looking back further, they are paying the same dividend or increased their dividend since 1981, from the data we have. Not bad. However, Lowe’s (LOW) not only never missed a payment or cut it for 53 years, they have also increased the payment every year too. This is an impressive record not held by many companies.

Because Lowe’s (LOW) is so much cheaper than Home Depot (HD), pays the same dividend yield, and has a better track record of raising their dividend, we are choosing Lowe’s (LOW). Another benefit for us is that most of our shopping at home improvement stores is Lowe’s (LOW). This will give us knowledge of at least how one store is doing. Also, with us shopping there, we will get a little bit of our money back. I wonder if they can pay their dividends in tools?

We bought 4 tools, I mean shares of Lowe’s (LOW) for $291.14. We will get paid $4.48 a year in dividends. They are only paying about 2% of revenue right now, and their profits are about 3 times as much as their payment. While they are paying small amount compare to a lot of our picks, we expect them to be a great dividend growth stock. At least that is enough money to buy a few tomatoes plants.

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