Home Depot's Earnings Were Solid, but the Stock Hit a 2-Year Low. Time to Buy the Dividend Stock With a Yield Over 3%?

After Home Depot (NYSE: HD) reported fiscal first-quarter results before the market opened on Tuesday, the home improvement giant's stock briefly slipped below $290 -- a level it hadn't touched since late 2023. The dip came even though the quarter was, on the surface, perfectly respectable. Sales grew nearly 5%, adjusted earnings came in solidly, and management reaffirmed its full-year outlook.

So why the disconnect?

The answer mostly lies outside Home Depot's aisles. Stubbornly high mortgage rates have largely frozen housing turnover. Consumer confidence has slipped. And homeowners, while still showing up, are putting off the bigger, more profitable projects that tend to drive the retailer's growth.

Still, with the stock down meaningfully from its all-time high in late 2024 and the dividend yield now north of 3%, dividend investors may want to take a closer look.

Image source: Getty Images.

A business holding up

Home Depot's sales for the first quarter of fiscal 2026 (the period ended May 3) rose 4.8% year over year to $41.8 billion -- a headline boosted in part by recent acquisitions.

The more telling figure is comparable sales, which strips out new locations. That measure inched up just 0.6% overall, with U.S. comparable sales rising 0.4%. While that's modest, it's actually a small improvement from the 0.3% U.S. comparable sales growth Home Depot posted in the fourth quarter of fiscal 2025.

And the composition of that growth is interesting. Customers who are showing up are spending a bit more. The average ticket climbed 2.3% to $92.76. But fewer are coming through the door, with comparable transactions falling 1.3%. Management has consistently said that homeowners are still happy to spend on smaller jobs and maintenance items, but are holding off on the bigger renovations that historically have driven faster growth.

Profitability slipped slightly. Earnings per share landed at $3.30, down from $3.45 a year earlier.

Home Depot management tempered expectations for the rest of the year on the company's first-quarter earnings call.

"[W]e are not looking at a marked improvement in underlying demand," said Home Depot vice president of merchandising Billy Bastek. "We are looking at a higher comp in the second half of the year, and that is solely driven by a return to normal storm activity."

That's a candid acknowledgment that the recovery isn't quite here yet. It's also why management reaffirmed -- rather than raised -- its fiscal 2026 outlook, which calls for total sales growth of 2.5% to 4.5% and adjusted earnings per share in a range of flat to up 4%.

A more interesting dividend

Set against that backdrop, the dividend stock arguably has a different appeal than it did a year ago.

First of all, Home Depot raised its quarterly dividend 1.3% in February to $2.33 per share, which puts the annualized payout at $9.32. With shares trading around $300 as of this writing, the yield works out to roughly 3.1% -- meaningfully above the stock's 10-year average yield of about 2.4%.

Additionally, the retailer has now paid a cash dividend for 156 consecutive quarters and returned $9.2 billion to shareholders in dividends last fiscal year alone.

And the underlying business is also building toward a larger long-term opportunity for when the housing market eventually thaws. Home Depot's $18.25 billion acquisition of SRS Distribution in 2024 opened the door to a much larger professional-contractor opportunity. This builds on last year, when the retailer added building products distributor GMS.

And earlier this month, SRS closed on Mingledorff's, an HVAC distributor with 42 locations across the southeastern United States. According to management, these moves take Home Depot's total addressable market to roughly $1.2 trillion, with HVAC distribution alone accounting for an additional $100 billion.

With that said, if mortgage rates stay elevated and existing home sales remain stuck near multi-decade lows, the bigger-ticket projects Home Depot leans on for outsize growth could stay deferred longer than expected. And the higher debt load from recent acquisitions has weighed on return on invested capital, which slipped to 25.4% from 31.3% a year earlier.

Still, this looks like an interesting moment for patient dividend investors. The business is durable, the dividend yield is the most generous it's been in years, and the company has used the housing slowdown to widen its lead with the Pro customer. For investors who value income and don't mind waiting for the housing market to recover, the stock's depressed price may represent a good buying opportunity.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.