More Upside for HD Stock?
If you held Home Depot Inc (NYSE:HD) stock, you must be laughing all the way to the bank now. Over the past five years, the shares have returned 370% to shareholders. Home depot is not looking to celebrate quite yet, as it is still running a business. They continue to increase their dividend, have an aggressive share repurchase plan, and are expanding the e- commerce side of the business.
There are three main reasons to be bullish on HD stock, which you can find below.
1. The Dividend Story
Today, HD stock pays out a current yield at 2.1%, with a payment amount of $0.69. Back in August 2011, the dividend payment per share was $0.25. That is a 176% dividend growth over the past five year; just imagine getting a raise of that amount after five years of employment. (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.)
The board of directors are committing to increase the dividend payment as earnings continue to grow. The target payout ratio set by the board is 50%. As the company continues to grow, so does your money in investors’ pockets.
2. Share Repurchases
We all hear about dividend growth and dividend yield on stocks. However, a more tax-efficient way of returning cash back to shareholders is a share repurchase plan. The way it works is that the outstanding shares decrease since the company is investing in itself, which means investors own more of the company.
For example, let’s say you own 1,000 shares and there are 100,000 shares outstanding, so you own one percent. Now, let’s say that the company announces they are buying 20,000 shares (100,000 – 20,000 = 80,000 outstanding shares); take 1,000 and divide it by 80,000 and you now own 1.25%. Your total net worth increases in the long term.
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This is exactly what Home Depot is doing, buying $5.0 billion worth of shares this year. When management tends to take this action, it shows investors that the management thinks the stock is cheap and that there is no better way for them to invest the company’s money. (Source: Ibid.)
3. E-Commerce Business
Home Depot is one company that moves with the times. This is 2016 and we are all aware of online retailers, and Home Depot is one company that is not too affected by the Internet, since many of their products need to be touched in order to make an educated purchase, such as flowers for the garden. However, this will change as time passes. For a company to succeed, customers opinions need to be considered, and that’s what happened, with various products being offered through online purchase for pickup in store or via online delivery.
The company is planning on spending between $1.4 billion to $1.6 billion on total expenditures, and part of this cost is due to maintaining and upgrading the online side of Home Depot’s business. This will also attract new customers to the business, since some people just hate to go shopping. (Source: Ibid.)
The Bottom Line on HD stock
Home Depot is focused on three aspects, as are shareholders. HD stock is a shareholder-friendly stock that aligns the business needs with the needs of the shareholders, and you can’t go wrong with that.