Lowe's Companies (LOW) delivered strong Q1 free cash flow and is likely to hike its dividend next month. But LOW stock is down 15% from $253.29 on April 20. Based on its average historical yield, it could be worth 35% at $290 per share. This article will show why.
LOW closed at $215.03 on Friday, May 22, down over 1%. It's now at a 3 and 6-month trough price and is almost near its lowest closing price in a year ($210.83 on June 25, 2025).
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LOW stock - last 12 months - Barchart - As of May 22, 2026 Is this selling overdone, especially as its financials seem strong? Moreover, if historical precedent holds, Lowe's is likely to hike its dividend. That could push LOW stock higher.
Higher Dividend Could Spike the Stock
Seeking Alpha reports that Lowe's Companies has raised its dividend every year for the past 62 years. It last reported its 4th quarterly dividend payment on March 19, so it's likely to report a new dividend rate on June 19 or 20.
Given that it raised the quarterly dividend 5 cents last year to $1.20, it could raise the new quarterly dividend per share (DPS) rate to $1.25 (i.e., $5.00 annually).
Moreover, its historical dividend yield has been 1.68% according to Seeking Alpha, and Morningstar says it's been 1.72% over the past 5 years. Yahoo! Finance reports 1.77%, so the average of these three is 1.723%.
So, this implies that LOW stock could be worth over $290 per share. Here's why:
$5.00 new dividend rate / 0.01723 = $290.19 per share
This means that if the market gives LOW stock an average historical yield, it could rise 35% from $215.03 on Friday, May 22.
Does this seem doable? Yes, according to free cash flow (FCF) projections for Lowe's Companies.
FCF Forecasts Support a Dividend Hike
For example, on April 20, Lowe's reported 0.6% like-for like sales gains and 10.5% higher total revenue. Moreover, the company expects its 2026 revenue to rise 7% to 9% over last year.
In addition, it reported $2.829 billion in free cash flow (FCF) for Q1, slightly down from last year's $2.969 billion. Moreover, its FCF margin was strong at 12.26% of sales. Over the trailing 12 months (TTM), its FCF rose to $7.619 billion, representing 8.62% of sales vs. 8.02% a year earlier.
Based on analysts' revenue forecasts, revenue could reach $93.11 billion this year ending Jan. 31, and $96.04 billion next year, or $94.575 billion over the next 12 months (NTM). So, if FCF averages 8.6%, FCF could reach $8.13 billion in the NTM period.
That is more than enough to cover a dividend hike to $5.00. For example, there are now 561 million shares outstanding, so the annual dividend cost is just $2.805 billion.
In other words, this is just over 1/3rd of its FCF used to pay for the dividend:
$2.805 billion DPS cost / $8.13 NTM FCF = 34.5%
Moreover, the strong FCF implies LOW stock could be worth much more.
Price Targets for LOW Stock
For example, its TTM FCF of $7.619 billion in Q1 represents 6.3% of its market cap of $120.632 billion (according to Yahoo! Finance).
This means that Lowe's stock could be worth $129.05 billion in the next 12 months, assuming the market applies the same FCF yield to the NTM FCF:
$8.13b FCF NTM / 0.063 = $129.05 billion
That implies that LOW stock could be worth $8.4 billion more, or +7.0%. That sets a price target (PT) of $230.08 (i.e., $215.03 x 1.07).
So, the average PT using a dividend yield ($290.19) and FCF yield ($230.08) is $260.08, or +21% over Friday's close of $215.03.
Moreover, other analysts agree. For example, Yahoo! Finance reports that the average PT of 35 analysts is $263.30. Similarly, Barchart's mean survey PT is $263.69, and AnaChart's survey of 24 analysts is $292.11.
The bottom line is that LOW stock looks deeply undervalued here. One way to play it, to set a lower buy-in price and get paid while waiting, is to short out-of-the-money (OTM) puts.
Shorting OTM LOW Puts
For example, the $205.00 put option strike price expiring in 20 days on June 12 has a midpoint premium of $2.38 as of Friday, May 22. That represents a short-put yield of 1.16% for three weeks (i.e., $2.38/$205.00).
LOW puts expiring June 12 - Barchart - As of May 22, 2026 This means that an investor who secures $20,500 in cash with their brokerage firm can enter an order to “Sell to Open” 1 put contract. The account will then immediately receive $238.00.
The cash acts as collateral to buy 100 shares of LOW stock if it were to reach $205.00 on or before June 12. After that, the collateral is released.
So, the 3-week income return is 1.16% (i.e., $238/$20,500 invested for 3 weeks), equivalent to a one-month expected return of 1.547%. Note that the delta ratio implies less than a 25% chance, based on historical volatility, that LOW will fall 4.66% to $205.00 by June 12.
Investors willing to take on more assignment risk can short the $210.00 put option, i.e., 2.34% below Friday's close, and receive $3.85. That works out to a 3-week yield of 1.833% (i.e., a one-month expected return of 2.44%).
Even if LOW drops to $210, the investor's breakeven point would still be just $206.15 (i.e., $210-$3.85), or -4.12% below Friday's close.
The bottom line is that LOW is deeply undervalued. One way to play it is to short OTM puts in nearby expiry periods.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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