1 Reason Home Depot's 17-Year Dividend Streak Makes It a Buy This Week
Key Points
Home Depot reported same-store sales growth in its fiscal Q2 despite tough economic conditions.
The company has raised its dividends annually since 2010.
The stock has an above-average dividend yield.
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Home Depot (NYSE: HD) has faced challenges recently, but these stem from the broader economy rather than anything specific to the company. That's because the world's largest home-improvement retailer's results are tied to larger macroeconomic forces.
In the wake of Home Depot's recent quarterly report, patient investors should strongly consider purchasing this cyclical company's stock, as right now, it comes with an attractive dividend yield.
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Getting paid to wait
Due in part to higher mortgage rates, persistent inflation, a sluggish housing market, and people being cautious about the economy, homeowners in general have been holding off on undertaking major projects. That has hurt Home Depot's sales.
Its fiscal second-quarter same-store sales (comps) grew by an uninspiring 1.7% globally (1.3% in the U.S.) Higher spending per ticket contributed about 2.8 percentage points to that 1.7% growth, even as falling traffic subtracted 1 percentage point.
Home Depot's operating income, adjusted for certain items, increased 4.8% year over year.
However, at some point, economic conditions will change, and mortgage rates will fall. That would likely stimulate homebuying activity and major renovations. Additionally, when homeowners start to feel more comfortable about their finances, more of them will start to take on larger projects again rather than sticking to smaller projects. When that happens, it's likely that homeowners and contractors will return to Home Depot for its convenience and attractive prices.
That would mean Home Depot's sales and earnings growth would accelerate. Logically, the stock price should follow.
In the meantime, shareholders can feel confident that the retailer will continue to distribute growing dividend payouts. The company has hiked its payments annually since 2010. And even during the Great Recession, Home Depot held its dividends steady rather than cutting them.
Annualizing the $2.33 quarterly dividend, Home Depot's stock has a yield of 2.8%. That's much higher than the S&P 500 index's average 1.1% yield.
Should you buy stock in Home Depot right now?
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Lawrence Rothman, CFA has 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.
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