Home Depot Just Flashed Another Warning. Is It Time to Give Up on the Dividend-Paying Dow Stock?

Home Depot (NYSE: HD) is among a rare breed of companies that is so massive and influential that it's worth following even if you aren't interested in the stock. Home Depot's results act as a barometer on the state of the housing market, the construction industry, the U.S. consumer, and more.

When Home Depot is doing well, it typically means consumers are spending on costly home improvement and home renovation projects. Slowing results can signal that consumers are tightening their purse strings amid economic pressures.

Unfortunately, Home Depot has been in slowdown mode for years.

Here's what investors need to know from the company's latest quarterly results and whether the dividend-paying Dow Jones Industrial Average (DJINDICES: ^DJI) component is worth buying now.

Image source: Home Depot.

The slowdown continues

Home Depot stock is hovering around a 52-week low after the company reported disappointing third-quarter fiscal 2025 results and updated its full-year guidance.

Home Depot now expects a slight increase in comparable 52-week sales growth but a 5% decline in adjusted diluted earnings per share (EPS). For context, when Home Depot reported its fourth-quarter fiscal 2024 results in February, it guided for a 1% increase in comparable-sales growth and a 2% reduction in diluted EPS from $15.24 in 2023.

Home Depot's fiscal 2023 diluted EPS was $15.25, which was a 9.5% decline from $16.69 in fiscal 2022 diluted EPS. This means that Home Depot's growth isn't just slowing. Earnings have been falling for more than three years.

On Home Depot's Nov. 18 earnings call, CEO Ted Decker said that Home Depot expected to see a pickup in demand in the second half of the year because management was expecting interest rates and mortgage rates to come down. Instead, Home Depot saw ongoing consumer uncertainty and a weak housing market that is disproportionately impacting home improvement demand.

Home Depot's weak results highlight the bifurcation in today's economy between the struggling consumer-facing sector and the rip-roaring stock market, which has been on a tear for the last three years, largely thanks to artificial intelligence (AI) growth stocks and financial stocks.

Decker addressed this divide on the earnings call:

So it's certainly a very interesting consumer dynamic out there. On the one hand, you look at certain economic indicators and you say, geez, things are pretty good. You look at GDP [Gross Domestic Product], you look at PCE [Personal Consumption Expenditures], those are both strong. But on the other hand, what's impacting us in home improvement is the ongoing pressure in housing and incremental consumer uncertainty.

In recent earnings calls, management's tone has noticeably shifted from cautiously optimistic to more serious as the severity of the slowdown in housing and consumer spending intensifies. This is why it's unsurprising to see Home Depot trim its full-year fiscal guidance.

Home Depot is a reasonable value with a sizable dividend yield

After falling 6% on Nov. 18 and another 0.6% on Nov. 19, Home Depot is now down 14% year to date and is up just 24% over the last five years, compared to an 86.2% gain in the S&P 500 (SNPINDEX: ^GSPC) and a 56.7% gain in the Dow.

The sell-off is arguably justified, given three consecutive years of lower adjusted earnings. Despite the poor results, there are still reasons to be optimistic about owning Home Depot over the long term.

Home Depot is far from alone in this slowdown. It's an industrywide decline. In fact, management reiterated on the recent earnings call that it still believes Home Depot is taking market share -- meaning many of its peers are faring even worse.

Home Depot's valuation was overextended after the company experienced a temporary boom in demand during the pandemic's heights. Since then, however, the valuation has gone from expensive to now much more reasonable at 23.2 times its updated fiscal 2025 adjusted diluted EPS guidance.

Despite negative earnings growth, Home Depot continues to raise its dividend. It has increased its annual payout for 16 consecutive years. However, its latest increase was a 2.2% dividend raise -- the smallest percentage increase since it began boosting its payout in 2010. The ongoing raises, paired with Home Depot's declining stock price, have pushed its yield up to 2.7%. For context, Home Depot's dividend yield hasn't been above 3% in the last five years, and it has gotten as low as 1.6%.

Home Depot is a worth a closer look for patient investors

Home Depot is a fantastic company that is operating in the midst of arguably the worst industry slowdown since the 2008 financial crisis. At times like these, it's essential for long-term investors not to let present-day narratives cloud their judgment.

Home Depot remains the dominant home improvement company in the U.S., with a sizable presence in Canada and Mexico.

After years of being somewhat expensive, the stock is now a much better value and sports a sizable dividend yield.

Overall, Home Depot stands out as a great buy for long-term investors with at least a three-to-five-year ownership plan, especially those looking for a blue chip dividend stock to boost their passive income stream.

Daniel Foelber 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.