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No. of Recommendations: 5
Lowe's Is Becoming Enticing

This past holiday weekend I was talking to my four-year olds and they said that they wanted to get another bird feeder for the house. I asked them where they wanted to go and they both said "Lowe's" (LOW).

Hmmmmm. "What about going to Home Depot (HD)?," I asked. They replied that they did not want to go to Home Depot, they wanted to go to Lowe's. "Why?", I asked. "There is more light and people help us in Lowe's," they replied. Now, if a four year old feels this way, I am going to guess millions of other folks out there do also.

This comes off news that Lowe's recently increased its market share in 17 of 19 business categories last quarter. It also announced that it is increasing its dividend 60% and, here is a big one, adding $3 billion to their share buyback program. Last quarter Lowe's repurchased $650 million of shares and could buy more. This is a company that produces over $2.1 billion from operations each quarter, and after all its capital expenditures, share repurchases, debt reduction, still had a cool $250 million left to add to its piggy bank.

The new buyback announcement means it has a total of $3.8 billion worth of stock it is authorized to repurchase. At today's prices, that will take about 119 million shares of the 1.5 billion total or over 7% of off the market. That is a significant amount. The real beauty of this is that is can easily be done over the next year and a half with very little impact on operations or by adding any additional debt.

The dividend. At its new level, Lowe's will yield about 1%. This is poor when you compare it to the over 2% yield from Home Depot. Lowe's will spend about $450 million over the next 12 months on dividends (depending on the rate of the share buyback) at the new rate and while significantly higher than the $87 million it doled out in 2004, more is needed.

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