The widely-held perception in the market is that retail stocks are struggling. And while this is true for many retailers, due to the increasing threat of e-commerce led by Amazon (AMZN), not all retailers are hurting.
One retailer that continues to thrive in this environment is The Home Depot (HD). On February 26th, Home Depot announced a massive 32% dividend increase (and also a new $15 billion share buyback).
Home Depot has grown into the world’s largest home improvement retailer and a dominant industry leader. It is a mega-cap stock, with enormous cash returns as well.
Hammering Through Growth
Home Depot is a specialty retail giant, with annual sales of $108 billion and over 2,200 retail stores in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. Home Depot stock has a market capitalization of $211 billion.
Home Depot generated fourth-quarter sales of $26.5 billion, an 11% increase from the same quarter last year. Comparable sales, which measures sales at stores open at least one year, increased 3.2% for the quarter, including 3.7% growth in the United States. This impressive growth came despite a wide range of potential challenges such as e-commerce competition, cost inflation, and poor fourth-quarter weather.
For 2018, Home Depot’s sales increased 7% from fiscal 2017. Comparable sales for fiscal 2018 increased 5%. Earnings-per-share increased 33.5% in 2018. Home Depot achieved record sales and net earnings in fiscal 2018. This allowed it to announced a huge new round of cash returns to shareholders.
Home Depot announced a new, $15 billion share buyback authorization. This represents over 7% of the current market capitalization of the stock, meaning the buyback should be a meaningful contributor to future EPS growth. Store expansion and increasing sales at existing stores is also likely to help boost EPS growth.
For example, Home Depot expects five net new store openings, and 5% comparable sales growth in 2019. Along with the new stock buyback, Home Depot delivered a sizable dividend increase.
Building A Dividend Growth Machine
Home Depot declared an upcoming quarterly dividend of $1.36 per share, up 32% from the previous dividend payout. The company has now hiked its dividend for 10 years in a row. As a result, Home Depot now qualifies as a Dividend Achiever, a group of stocks with annual dividend increases for 10+ consecutive years.
Going forward, Home Depot’s annual dividend of $5.44 per share represents a current yield of 2.9%. Home Depot’s dividend yield exceeds the average yield of the S&P 500 Index, by a full percentage point.
And, Home Depot is a high-growth dividend stock. With a projected dividend payout ratio of 54% for 2019, the company has plenty of flexibility to continue increasing the dividend each year. Home Depot’s 2.9% yield and high growth make it an attractive long-term holding for dividend growth investors.
Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.
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