Home Depot Stocks: Generating Long-Term Income (NYSE: HD)

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Written by Nick Ackerman.

Home Depot, Inc. (NYSE: HD) has provided investors with a steadily growing dividend over the years. They have benefited greatly from DIY projects throughout the COVID years. However, in 2022, some of these benefits are retreating and stocks have fallen. The stock is currently down more than 26% from its 52-week high. I think this represents a much more attractive entry price for investors.

Performance and outlook

Over the years, Lowe’s Companies, Inc. (LOW) has been a strong contender for HD. There is also much more competition from private companies. The one that comes to mind in my part of the country is Ménards (private company). They have 351 locations in 15 Midwestern states.

Over the past decade, the performance of the two publicly traded stocks has been nearly identical. LOW edged out HD only slightly to take the lead. However, according to the table below, this was only a more recent development. The HD has repeatedly been the leader in total yield performance.



Based on market capitalization, HD is significantly higher than LOW. This is despite the fact that HD was only founded in 1978 and LOW was founded in 1946. It goes back even further to 1921, if you go back to the general store, it started as. Either way, they had a significant lead to start first. One of the main differences between these companies is that Lowe’s targets professionals, while HD targets DIYers. However, this objective has changed and HD now wants to put more emphasis on bringing together professionals.

On their last earnings call, HD said they believe the pros will help them hit the $200 billion sales milestone. This target is quite high, considering it’s about $50 billion more than what they got in fiscal year 2021. That figure came in at $151.2 billion, which is represents an increase of 14.4% compared to fiscal year 2020.

As we continue to serve this customer for their immediate unplanned purchases, we now believe that our capabilities are beginning to satisfy significant planned purchase opportunities. We believe the ability to respond to planned and unplanned buying opportunities from our Pros will be an important driver of growth as we strive to reach $200 billion in revenue.

Notably, they did not provide a target as to when they wanted to achieve this goal. They simply stated in the Q&A that “we intend to get there as soon as possible in a sustainable and cost-effective manner.”

That being said, Home Depot has always been able to get more of its total sales from professionals than Lowe’s. So this is also a push for Lowe’s, which could create more competition in the space between these home improvement chains:

Home Depot has historically derived more of its business from these more lucrative and frequent shoppers, but Lowe’s is also trying to attract more professionals. About 45% of Home Depot’s total sales come from business customers compared to about 20% to 25% at Lowe’s, according to the companies.

When it comes to the cheapest stocks, on a P/E basis, LOW stands out as being a bit cheaper on this metric. That being said, HD has generally traded at a higher P/E, relatively speaking. The exception was around 2019 to 2020. During this period, it seems that a restructuring was linked to some of the strange actions we see in the chart below for LOW.



For HD, specifically, we see that the stock’s current P/E ratio is below its decade-long average P/E ratio. That’s thanks to the steep declines the stock has seen. It all seems tied to the Fed rate hike. Investors are betting that with the rise in rates, they will plunge the US economy into a recession. Not to mention that the yield curve inverted, which also signaled a coming recession.

Still, with the current valuation, we’re looking at a nearly decade-long low for the company’s stock. The only time we see a significantly lower figure was during the March 2020 market crash caused by the COVID pandemic. (Which ultimately benefited HD during the lockdowns.)



Looking at today’s earnings, analysts continue to expect HD share growth. It stalls a little until 2023 but eventually resumes. This is at least based on the estimates provided. Over the next five years, the average EPS growth rate is expected to be around 7.22%.

After 2027, only one analyst projection is provided. More analysts will share their predictions as we get closer to those years. This should give us a better idea of ​​what to expect.

Home Depot BPA Expectations

Home Depot EPS Expectations (Seeking Alpha)

If we go back to the average P/E once again, HD should be trading higher on that basis alone. Now, if we factor in potential EPS growth through 2023, we should definitely see higher HD – barring any sort of catastrophic recession or black swan event. The shares could reach close to $366 if we use these expectations and the average P/E.

That being said, over the past 16 quarters, the company has exceeded expectations a total of 15 times. The company only failed in April 2020, for what seem like obvious reasons. However, they beat their revenue this quarter by growing just over 7%.

So, being rather conservative and disregarding any kind of beating expectations, this could indicate that HD has around 18% upside potential. This is at the time of writing, with the shares trading at $310.

One area that will continue to have a positive impact on HD EPS expectations is buyouts. The company has committed huge amounts of capital through these buyouts. Over the past decade, this has rapidly reduced the total number of shares outstanding.



Dividend generator

Earnings growth and outlook remain quite robust for HD stocks. Again, except some sort of black swan event. If there is another pandemic, who knows, HD might benefit again. These are all important points to consider for the dividend they have accrued over the years. The latest increase was a steep 15.15% increase from $1.65 per quarter to $1.90. In the results, when they announced the increase, they also noted that it was the company’s 140th consecutive dividend.

So they’ve been able to grow that dividend for the past 13 years now. Prior to that, they froze their dividend at $0.0225 per quarter. It was from the years 2006 to 2009. Again, it seems those years would be pretty obvious as to why they would want to be more financially prudent. This is all the more true as the GFC was linked to the housing market, from which HD benefits.

Home Depot Dividend History

Home Depot Dividend History (Seeking Alpha)

The current payout rate is 44.14% based on the last dividend. Over the past year, they have had a CAGR of over 20% for the dividend. In 2012, they paid a total of $1.16 in dividends. They are now expected to pay $7.60 this year. Given their historical dividend trend, I would say the expected amount is more likely to become a reality than not.

This is the type of growth an income investor can accept. These increases have far exceeded inflation, even at its current high levels. It’s quite clear that HD also has some flexibility in pricing power, being the dominant home improvement store.


HD has served income investors and even growth investors over the years. The shares are higher now than they were just a few years ago. The stock has slid lower more recently, falling into its own bear market. This makes stocks much more attractive right now. It seems like a good time for investors to become long-term shareholders of HD to help build their income over the next few years.

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