The retail industry is in a state of doom-and-gloom right now. Many retail stocks are languishing at 10-year lows, with some falling to depths not seen since the Great Recession of 2008-2009.
Indeed, the proliferation of Internet-based retailers, led by Amazon.com (AMZN), threatens the very existence of many retailers that still rely on brick-and-mortar stores. But for all the negativity facing the retail industry, The Home Depot (HD) continues to thrive.
Home Depot has generated excellent growth in the years since the recession, and hasn’t skipped a beat even with the e-commerce boom. It continues to draw customers in, and is expanding in new channels. In turn, shareholders have been rewarded with impressive returns and strong dividend increases. For these reasons, Home Depot stock is an attractive long-term holding for dividend growth investors.
Home Depot’s Crucial Advantage
While it is difficult to see how conditions could be so poor for retailers given that the U.S. economy continues to expand, many retailers face an existential threat in the form of e-commerce. But Home Depot continues to fire on all cylinders. While many areas of retail are susceptible to online competition, home improvement retail has proved to be highly resilient so far. Consumers continue to demonstrate a desire to inspect products in person, and also appreciate the ability to ask questions to qualified personnel. This is how Home Depot has retained its competitive advantages.
Home Depot reported another strong performance in the 2019 first quarter. Net sales increased 6%, including 2.5% comparable sales growth (which measures sales at stores open at least one year). Digital channel sales increased 23% year-over-year. Transactions increased 0.5% while average ticket increased 2%, indicating customers are buying more frequently, and spending more each visit. Home Depot’s EPS increased 9% for the quarter, thanks to a combination of sales growth and share repurchases.
While there are concerns of a coming economic slowdown, Home Depot continues to see growth on the horizon. The company reaffirmed its guidance for 2019, including 5% comparable sales growth, 3.3% total sales growth, and diluted earnings-per-share of $10.03 for the full year.
Home Depot: Top-Notch Dividend Growth Stock
Home Depot stock is very attractive for income investors, as it provides a strong current yield along with high dividend growth each year. Home Depot has a current dividend yield of 2.6%, which exceeds the dividend yield of the average S&P 500 Index stock.
Plus, Home Depot increases its dividend at a high rate each year, thanks to its excellent revenue and EPS growth. Home Depot raised its quarterly dividend by 32% in February, making it one of the highest dividend growers in the Dow Jones Industrial Average this year.
While the company may not be able to replicate that dividend growth rate every year, particularly in a recession, investors can still reasonably expect a high dividend growth rate that significantly exceeds inflation.
We expect Home Depot to grow EPS by 8% per year over the next five years, which will give the company more than enough growth to continue raising its dividend at a high rate.
With an above-average dividend yield and a high rate of dividend increases each year, Home Depot is a high-quality dividend growth stock for long-term 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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