The novel coronavirus pandemic has made investors skittish about retail stocks, and with good reason. However, not all retail is created equal. Lowe’s (NYSE:LOW) is proof of that. Homeowners in lockdown may not have been buying new suits, but they spent a lot of time online, shopping at home improvement stores. Lowe’s saw online sales jump 80% in the first quarter, with overall sales also up double-digits. That strong performance has driven LOW stock to a 9% gain so far in 2020.
And it looks as though the ride isn’t over yet, as homeowners look to their back yards this summer.
Booming Business for Home Improvement Stores
The pandemic and resulting lockdown had a brutal effect on the retail sector. With stores shut down and weak e-commerce capabilities, department stores like Macy’s (NYSE:M) have been dealt a serious blow. Adding to their pain, working from home has lowered demand for new clothing as former office workers go casual.
Home improvement stores have seen a very different story.
People who are self-isolating at home have apparently decided that this is the perfect time to renovate. When Lowe’s reported its first-quarter earnings in May, sales of $19.7 billion were up over 11% compared to the first quarter of 2019. Online sales increased a whopping 80% for the quarter, as the company’s ongoing e-commerce investment paid off. Earnings per share of $1.76 was an increase of 35% year over year. In other words, while so many retailers have been struggling for survival in the pandemic, Lowe’s has thrived.
Even after the March market meltdown, LOW stock is up 9% so far in 2020. Rival Home Depot (NYSE:HD) is seeing a similar pattern of consumer behavior. And its stock has posted 11% growth so far this year.
With summer now here, 2020 is shaping up to be “the year of the back yard.” Many families are planning on “staycations” instead of travelling. That means they’re spending money on lawn furniture and accessories, gardening supplies, tools, grills and other products that Lowes carries. Big-ticket projects like new decks are also in play. The boost in spending at Lowes in the first quarter seems likely to continue through the summer, at least.
LOW stock has earns a solid A-rating in my Dividend Grader, along with an overall B-rating. Why? Consistency for one thing. Every year since it became a publicly traded company in 1961, Lowe’s has paid out a quarterly dividend. You can count on it like clockwork. In recent years, the dividend payout has increased significantly. For example, in 2015 the total dividends amounted to $1.02 per share. By 2019 that had increased to $2.06 per share. That’s a very healthy 102% bump over the course of five years.
This year, the company has already paid out $1.65 in dividends. The latest — 55 cent per share — was announced on May 28.
Bottom Line on LOW Stock
There is a lot to like about LOW stock at the moment. Lowe’s moved quickly to adjust to conditions under the coronavirus pandemic. During the second quarter when the effects of lockdowns were being felt by so many brick and mortar retailers, Lowe’s posted big revenue and EPS gains.
The summer is expected to continue that trend as people stay home and fix up their yards.
The risk is that if the pandemic slows in the second half of the summer, the sudden interest in home renovation and yard work could drop off. That would slow the spending and could add some volatility to LOW stock. That risk is part of the reason why overall, the stock gets a B-rating instead of an ‘A.’
That being said, I believe the risk of things suddenly returning to normal remains relatively low. After all, the country just reported its single largest one-day gain in coronavirus cases since April. Having Americans hanging around the home through the summer will position Lowe’s stock for continued growth, making it a safe bet for your portfolio. And don’t forget those juicy dividends to sweeten the pot.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.