Motley Fool: Lowe’s provides something to build on

If you’re looking for a strong, sustainable dividend-paying stock that will keep the payout checks coming for the next few decades, you can’t do much better than Lowe’s (NYSE: LOW).

The home-improvement retail chain has increased its dividend payouts without fail in each of the past 54 years. Lowe’s annual payouts have more than doubled over the past four years and recently yielded 2.1 percent. The best part? Lowe’s is likely to keep the dividend growth flowing for many years.

This stock has ridden the housing recovery wave to heights unimaginable in the depths of the Great Recession. Despite a recent decline, shares have roughly tripled in value, overall, over the past five years.

Lowe’s relatively simple retail business is likely to stay relevant as long as people need houses to live in and maintain. Better still, unlike many others retailers, its business appears to be Amazon-resistant.

While Home Depot has focused on serving building contractors and professionals, Lowe’s has more aggressively courted homeowners. In the robust housing market we’ve enjoyed, that has put Home Depot ahead, but Lowe’s is looking to remedy that shortfall, in part by buying some wholesale retailers. With housing prices and mortgage rates rising, fewer people might want to buy and more might want to repair and renovate – which could serve Lowe’s well. (The Motley Fool has recommended Lowe’s and Home Depot.)

Ask the Fool

Q: When someone refers to a company’s “catalysts,” what is she talking about? – B.G., Shenandoah, Iowa

A: She’s referring to things that could cause a stock’s value to change.

Savvy investors aim to invest in healthy and growing companies whose stocks seem to be undervalued, because those stock prices can be expected to eventually approach (or exceed) their fair values. But when and why will the stock prices rise? It will often be because of positive catalysts. Thus, when studying a company, try to identify positive catalysts, which could be a strong earnings report, an expected acquisition, the launch of a new product, new legislation, new contracts, a legal victory, a new technology, a housing boom or the end of a recession, among other possibilities.

A catalyst for a biotechnology company could be Food and Drug Administration approval of a promising new drug. There are negative catalysts, too, of course, that could hurt a company’s progress.

Q: Where can I look up historical price-to-earnings ratios online? – H.L., Rutland, Vermont

A: A P/E ratio can give you a rough idea of how overvalued or undervalued a stock might be – especially when you compare it to the company’s average P/E ratio in recent years. A bunch of websites offer current and historical P/E ratios.

For example, click over to morningstar.com and enter a company’s ticker symbol up top in the “Quote” box. That will take you to a page offering lots of data on it. Click on “Valuation,” and you’ll be shown not only the current P/E ratio (as well as other valuation-related measures) but also the five-year average P/E. There’s even a “Forward” P/E, based on expected earnings over the coming year.

My dumbest investment

Timmberr!

I invested about $40,000 in teak trees through a Latin American timber company, hoping that the long-term gains would help with college costs for my grandkids.

The company had a nice website and great reviews, and it offered to let you visit the farms and your personal trees. The company would care for the trees, including replacing any new trees that died in the first year, then thin the trees and finally harvest and sell the wood when the trees were large enough.

I never got any reports of thinning, and some trees were 20 years old when I bought them. Eventually, I learned online that the owner had died, his wife had cancer and the workers weren’t being paid. The Costa Rican government seized everything, as the taxes hadn’t been paid, and the Better Business Bureau ranking turned into an F.

I should have stuck to stocks and mutual funds or (shudder) just left the money in a bank account. – G., online

The Fool responds: Ouch. You fell for a not-uncommon scam, where investors are required to invest large sums and are promised hefty guaranteed returns. Always be wary of any guaranteed returns – especially big ones. Stocks can indeed be much safer, especially if they’re tied to established and growing profitable companies. Remember that any investment that sounds too good to be true probably is.