Home Depot Inc: 3 Reasons to Be Bullish On HD Stock Income Investors 2016-11-24 23:17:10 Home Depot Inc.NYSE:HDHD Stockhome depot stockdividend stock Home Depot Inc. (NYSE:HD) shares are trading near their all-time high. Is there more upside ahead? Dividend Stocks,News https://www.incomeinvestors.com/wp-content/uploads/2016/11/HD-stock-1-150x150.jpg

Home Depot Inc: 3 Reasons to Be Bullish On HD Stock

Upside for HD Stock?

Home Depot Inc (NYSE:HD) stock shouldn’t be ignored by income and growth investors.

The market leader in the home improvement retailing segment, Home Depot is shareholder-friendly, with the share price having returned 192% over the past five years.

Let me explain three reasons to be bullish on HD stock, even after the stellar stock performance over the past five years. 

Booming Real Estate Sales

Home Depot and the performance of the real estate market have a strong correlation. This includes both new homes that are being built and new homeowners that have taken possession of a property.

New home sales have been on an upward projection. Today, approximately 580,000 new homes are sold on a monthly basis, which is more than double that of five years ago. (Source: “United States New Home Sales,” Trading Economics, November 23, 2016.)

Home Depot is a major beneficiary of this housing demand. With sales increasing, Home Depot is part of the conversation, from the moment that the house gets built to when the new owner has moved in. When building the home, materials are needed. And when the new residents purchase the property, they may wish to make further changes.

With the need for Home Depot’s products over the course of the process, the company’s cash registers will continue to ring.

Dividend and Share Repurchases

With more cash flow coming in shareholders have not been forgotten about. Shares of HD stock are currently trading at $131.21, with gives investors a current yield of 2.1%. The dividend of $0.69 per share is paid on a quarterly basis.

The dividend is reviewed in February on an annual basis. The review comes after fourth-quarter earnings, which include sales from the holiday season.

HD stock has returned money back to shareholders via not only the dividend, but also another method that uses excess cash flow: share repurchases. In February of this year, Home Depot announced that the board of directors had approved an $11.0-billion share buyback program. This program is expected to be completed by February 2018.(Source: “The Home Depot Announces Record Fourth Quarter And Fiscal 2015 Results; Increases Quarterly Dividend By 17 Percent And Provides Fiscal 2016 Guidance,” Home Depot Inc, February 23, 2016.)

This is a bold move by management, because the shares are trading near their all-time highs. And when the share buybacks are completed, it signals that the company believes that shares are undervalued. In order to continue rewarding shareholders by way of the dividend and share repurchases, the bottom line of the balance sheet needs to grow.

Growing E-Commerce Business

As of February of this year, Home Depot has a return on investment target return of 35% over the next three years. The current the return on invested capital is 28%. When compared to the previous year, this number grew 3.10%, from a previous level of 24.9%.

A major reason for such returns is the e-commerce side of the business. In the fiscal year 2015, online sales grew by approximately $1.0 billion compared to the previous year. In this period, online sales hit $4.7 billion, which was a growth of 25.4% over the prior year. Online sales would account for 22.4% of total sales; even just a few years ago, the online side of the business didn’thave the large impact on sales that it does today. (Source: “Letter To Shareholders,” Home Depot Inc, March 24, 2016.)

Final Thoughts on HD Stock

Home Depot is a company that makes great efforts to improve every aspect of its business, such as changing its business plan for the sake of a larger online presence. That, combined with the dividend and share buybacks, is why HD stock is one of my favorite specialty retailing stocks.

Related Articles


Please wait...

Sign up to receive our FREE investment newsletter:

5 Dividend Stocks to Own Forever

This is an entirely free service. No credit card required. You can opt-out at anytime.

We hate spam as much as you do.
Check out our privacy policy.