Home Depot (HD) was founded more than 40 years ago back in 1978. Since that time, it has grown into the leading home improvement retailer in the U.S. based on its market cap of $289 billion, notes Ben Reynolds, editor of Sure Passive Income.
Home Depot’s impressive growth history is evidence of a durable competitive advantage. The company has size and scale in its industry. It can pressure suppliers for the best prices and give customers reasonable prices.
Recessions have not been a major concern for Home Depot, including the COVID-19 related economic downturn. People spending more time at home has led to greater sales for the home retailer, as more attention is paid to home projects that need completion.
In fact, Home Depot saw revenues surge 23.2% in its most recent quarter versus the same quarter last year. Earnings-per-share grew 25.7% over the same time period. The company also saw incredible digital growth of approximately 80% last quarter versus the same quarter a year ago.
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Overall, we expect Home Depot to compound its earnings-per-share at around 9% annually moving forward. This is actually well below annualized adjusted earnings-per-share growth of 17.7% from fiscal 2015 through 2019. Our earnings-per-share growth estimate could easily prove to be too conservative.
Home Depot stock currently offers investors a 2.2% dividend yield. While this yield isn’t high, it is extremely likely to grow over time. Home Depot has a payout ratio of just 51% using our expected adjusted earnings-per-share of $11.70 for fiscal 2020. Additionally, the company has increased its dividend for 11 consecutive years.
We believe Home Depot to be a long-term buy and hold for investors looking for rising passive income over time. The company’s 11-year dividend increase streak coupled with its reasonable payout ratio and strong growth performance — even during a difficult period — is compelling evidence that the dividend will rise considerably over time.