Back in June, I outlined three reasons to love Home Depot (HD) stock, pointing to its payout, business outlook and the housing mega-trend.
Earlier this week, the company reported earnings and confirmed that original bull case.
In fact, shares of Home Depot stock have gained 14% since I applauded its prospects in June, while the S&P 500 slid around 1% during that time period.
More specifically, shares of HD stock gained 4% on Tuesday alone following the most recent quarterly results, bringing the stock’s one-year gains to more than 30% and leaving shares reaching an all-time high.
Home Depot Stock Earnings
Home Depot reported adjusted earnings of $1.35 per share in the most recent three-month period, topping the consensus for $1.32 and marking a nearly 23% year-over-year expansion. That growth came on sales of $21.8 billion — right in line with analyst expectations and 6.4% more than in the year-ago period.
Home Depot also continued to show same-store sales strength — a key metric for any retailer. Same-store sales for the third quarter were just over 5%, while that figure jumps to 7.3% when only considering domestic stores. According to CNBC, the retailer’s strength was “helped by strong demand from professional contractors and builders,” which itself is a reflection of the housing market’s continued recovery.
Home Depot’s ability to continuously deliver strong results is why I’m still bullish on the stock and believe in its prospects for the long haul — and analysts agree. Right now, the consensus is for solid earnings growth of 14% per year growth long-term, while expectations have increased in recent months for the current full year and for 2017.
Building a Solid Dividend
In case that’s not already enough reason to be confident in HD stock, also consider one of the points I made about the company back in June: On top of its double-digit growth, you get a reliable dividend! That one-two punch is pretty rare and has been especially sweet for investors this year with rates laying low.
Even after the stock’s 12-month run-up, the payout still yields just under 2%. And as I mentioned this summer, Home Depot has been rewarding shareholders since the 1980s, while stockholders have seen the quarterly dividend jacked up every year since the Great Recession.
That trend should continue; the company’s 40% payout ratio is reasonable, especially with the double-digit earnings growth on tap.
Shares of Home Depot stock are admittedly a bit frothy after its recent gains if you look at the company’s price-to-earnings ratio relative to its growth prospects. But in this case, the premium is justified. Despite two straight quarters of earnings declines for the broader market and an earnings “bloodbath” for the retail sector specifically, Home Depot is going strong and has been for some time.
The company’s revenue has expanded every year since 2010, while earnings per share have grown every year since 2009.
Put another way, you’re paying for consistency, growth and yield — which are well worth it.
Expect Home Depot’s momentum to continue … and get on board for the ride.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
