Home Depot Stock: FCF Makes It A Strong Dividend Growth Consideration (NYSE:HD) (2023)

Home Depot Stock: FCF Makes It A Strong Dividend Growth Consideration (NYSE:HD) (1)

By Valuentum Analysts

Home Depot's (NYSE:HD) latest quarterly results left a sour taste in many an investor's mouth, but we're not too worried. We believe the company's positioning with respect to do-it-yourself-ers and professional contractors remains solid, and we expect that home improvement trends will remain strong. The COVID-19 pandemic, in our view, has fundamentally changed how consumers view their home. They simply need more work and living space. We're huge fans of Home Depot's strong free cash flow generation, as well as its ability to cover cash dividends paid with it. With that said, let's dig into our work on this home improvement retailing giant.

As many may already know, Home Depot is the largest home improvement specialty retailer in the world. The company sells building materials, home improvement as well as lawn/garden products. The company's stores are huge and average ~104,000 square feet of enclosed space, with ~24,000 additional square feet of outside garden area.

Home Depot's financial performance depends in part on the stability (and strength) of the housing, residential construction, and home improvement markets. The outlook for new home construction activity in the U.S. has weakened significantly of late, but for the most part, the housing market, in general, remains surprisingly resilient. We'll talk more about recent trends later on in this note.

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Home Depot recently bought HD Supply through an ~$8.0 billion all-cash transaction. This deal added to Home Depot's exposure to the maintenance, repair, and operations ('MRO') space, a significantly fragmented market that the firm estimates is worth ~$55 billion. We look positively to increased federal infrastructure investments that will also support Home Depot's outlook

Home Depot plans to focus more on its professional customers, where average tickets are substantially larger, with an eye towards growing its MRO business. The firm has also significantly improved its omni-channel selling capabilities by integrating its evolving digital presence with its expansive physical operations. Home Depot has placed a great emphasis on further improving its e-commerce business to support sales growth.

Cash Flow Valuation Analysis

On the basis of our discounted cash-flow valuation model, we think Home Depot is worth $313 per share with a fair value range of $250-$376. The margin of safety around our fair value estimate is driven by the firm's LOW ValueRisk rating, which is derived from an evaluation of the historical volatility of key valuation drivers and a future assessment of them.

Our near-term operating forecasts, including revenue and earnings, do not differ much from consensus estimates or management guidance. Our model reflects a compound annual revenue growth rate of 4.3% during the next five years, a pace that is lower than the firm's 3- year historical compound annual growth rate of 11.8%.

Our valuation model reflects a 5-year projected average operating margin of 15.6%, which is above Home Depot's trailing 3-year average. Beyond year 5, we assume free cash flow will grow at an annual rate of 2.9% for the next 15 years and 3% in perpetuity. For Home Depot, we use a 8.7% weighted average cost of capital to discount future free cash flows.

Our discounted cash flow process values each firm on the basis of the present value of all future free cash flows. Although we estimate Home Depot's fair value at about $313 per share, every company has a range of probable fair values that's created by the uncertainty of key valuation drivers (like future revenue or earnings, for example). After all, if the future were known with certainty, we wouldn't see much volatility in the markets as stocks would trade precisely at their known fair values.

Our ValueRisk rating sets the margin of safety or the fair value range we assign to each stock. In the graph above, we show this probable range of fair values for Home Depot. We think the firm is attractive below $250 per share (the green line), but quite expensive above $376 per share (the red line). The prices that fall along the yellow line, which includes our fair value estimate, represent a reasonable valuation for the firm, in our opinion. Right now, shares of Home Depot are trading at $297.

Latest Quarterly Results

Home Depot issued disappointing fourth quarter 2022 results on February 21. The update revealed that comparable store sales in the quarter fell 0.3%, while operating income tumbled 1.5% from the same period last year. Diluted earnings per share nudged 2.8% higher from the same period a year ago. Home Depot continues to work through a weakened consumer spending landscape as well as year-over-year comparisons that are difficult as a result of pandemic-driven demand.

(Video) Home Depot is a Free Cash Flow Machine! | Home Depot (HD) Stock Analysis!

Looking ahead to fiscal 2023, Home Depot's sales guidance could have been better. The company believes that sales and comparable store sales expansion will be "approximately flat" for the fiscal year on a year-over-year basis, and an operating margin of 14.5%. The margin guidance incorporates the firm's $1 billion in additional compensation to help with churn across its frontline employee base. For fiscal 2022 and fiscal 2021, Home Depot's operating margin was ~15.3% and ~15.2%, respectively, so the forward guidance isn't particularly great in light of levels of profitability it reached the past couple years. The company's diluted earnings per share is also targeted to decline at a mid-single-digit clip during fiscal 2023. All told, Home Depot's guidance for 2023 wasn't particularly great given the resilience the firm has shown through all phases of the housing cycle.

The COVID-19 pandemic drove an increase in demand for home-improvement endeavors across the board. Millions of workers during the pandemic discovered that they preferred more space at home, whether living space or working space, and putting money in their homes held water given the work-from-home trends that were adopted for a long time after the onset of the COVID-19 pandemic. That said, many companies are asking employees to come back to the office, and with life largely getting back to "normal" for many, the amount of free time to do home improvement projects has become more limited. It's also the case that consumer budgets have become largely tapped out, and excess savings built up during the pandemic may be almost completely depleted by the third quarter of 2023. Consumer credit card debt is also picking up aggressively. It's looking more and more like fiscal 2023 may mark a period of transition for home improvement retailers as Home Depot and its rivals adjust to a post-pandemic demand environment.

Home Mortgage Rates on the Rise (30-year fixed rate = blue; 15-year fixed rate = green)

Home Depot Stock: FCF Makes It A Strong Dividend Growth Consideration (NYSE:HD) (5)

Though we haven't really seen much yet, we think the home-buying market is likely to retrench aggressively this year (or next), particularly with mortgage rates approaching the high-single-digits. For the week ending February 16, the U.S. average weekly fixed rate mortgage for a 30-year mortgage was 6.32% and for a 15-year mortgage, it was 5.51%, according to Freddie Mac. Though still low historically speaking, these rates are now more than double levels of late 2020, where the 30-year mortgage rate fell below 3% and the 15-year mortgage rate was nearly 2%. Housing prices will likely fall considerably in the coming years, and frankly, we've been quite surprised at how slow the adjustment has been to this new reality. The National Association of Realtors, for example, wrote that "single-family existing-home sales prices climbed in almost 90% of measured metro areas - 166 of 186 - in the fourth quarter (of 2022). The national median single-family existing-home price increased 4.0% from one year ago to $378,700." It stands to reason that higher rates will start to drive home prices lower based on affordability. Perhaps this will happen slowly at first, and then all at once.

Regardless, "the home" has become much more important the past few years as a result of COVID-19 and what the future of work may look like. Work-from-home trends have emerged as a result of the pandemic, and many employers are adopting a hybrid working environment. We expect the home improvement retailing industry, including Home Depot, to continue to reap the benefits of these dynamics as "the home" becomes a crucial part of the work environment, itself. Traditionally, there has been a stigma of working from home, but we don't think this exists anymore, as times have changed. Employers have to strongly consider the needs and preferences of their employees, more than ever before, particularly in the current tight labor market. Though many consumers made material changes to their homes during the pandemic to accommodate the new working environment adding more space, this is likely in the early innings. We would not be surprised to see many workers seek larger homes outside of urban areas; suburban sprawl will likely continue.

Concluding Thoughts

Home Depot's latest quarterly update wasn't great, but we're looking past fiscal 2022 and what could be a generally challenging fiscal 2023. We continue to like the home retailing giant as a solid dividend growth consideration in the long run.

The company's free cash flow generation easily covered cash dividends paid during fiscal 2022, as it has for many years now, and that's a trend we expect to continue. The big box home-improvement retailer recently upped its dividend payout 10%, to $2.09 per share, or $8.36 per share on an annualized basis. That higher dividend implies a forward estimated dividend yield of ~2.8%.

The company's dominance in serving do-it-yourself-ers and professional contractors as well as its recent decision to bring HD Supply in-house should help it succeed during fiscal 2023 and beyond. Our fair value estimate of Home Depot stands at $313 per share.

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This article or report and any links within are for information purposes only and should not be considered a solicitation to buy or sell any security. Valuentum is not responsible for any errors or omissions or for results obtained from the use of this article and accepts no liability for how readers may choose to utilize the content. Assumptions, opinions, and estimates are based on our judgment as of the date of the article and are subject to change without notice.

This article was written by





(Video) Why Home Depot Is an Awesome Dividend Stock | HD Stock a Review 📈 #Dividend Investing

We offer subscriptions and exclusive newsletters. Visit our website at www.valuentum.com for more information. Valuentum is an independent investment research publisher, offering premium equity reports and dividend reports, as well as commentary across all sectors/companies, a Best Ideas Newsletter (spanning market caps, asset classes), a Dividend Growth Newsletter, modeling tools/products, and more. Valuentum is based in the Chicagoland area. Valuentum is not a money manager, broker, or financial advisor. Valuentum is a publisher of financial information. Please read our Disclaimer that applies to all articles published on Seeking Alpha: http://www.valuentum.com/categories/20110613. Follow us on Twitter: @Valuentum

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson's household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the securities written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.

(Video) Invest $100 A Month In Home Depot And Get $583,000 A Year In Dividends - This Can’t Be Real!


Does Home Depot pay a good dividend? ›

The industry leader's dividend, which was boosted by 10% this past year, is paying a higher yield today of 2.8%. As you might expect, the companies' respective stock valuations reflect Home Depot's stronger sales, profit, and cash return metrics.

Will HD raise dividend in 2023? ›

The Company today announced that its board of directors approved a 10 percent increase in its quarterly dividend to $2.09 per share, which equates to an annual dividend of $8.36 per share. The dividend is payable on March 23, 2023, to shareholders of record on the close of business on March 9, 2023.

What is the dividend growth rate for HD? ›

And the median was 24.00% per year. The Home Depot's Dividend Payout Ratio for the three months ended in Jan. 2023 was 0.58. As of today, The Home Depot's Dividend Yield % is 2.69%.

What is Home Depot 5 year dividend growth? ›

Home Depot, Inc. (The) - 5 year dividend growth rate
20249.853USD *
20238.654USD *
43 more rows

Is Home Depot a good long-term stock? ›

Home Depot's long-term sales and earnings growth is impressive. An attractive valuation, coupled with a solid dividend, might be enough of a reason to own shares.

Is Home Depot a good stock to buy right now? ›

According to the current price, Home Depot is 83.10% away from the 52-week high. What are analysts forecasts for Home Depot stock? The 65 analysts offering price forecasts for Home Depot have a median target of 354.28, with a high estimate of 470.00 and a low estimate of 285.00.

How high will HD stock go? ›

Stock Price Forecast

The 31 analysts offering 12-month price forecasts for Home Depot Inc have a median target of 333.00, with a high estimate of 400.00 and a low estimate of 248.00. The median estimate represents a +15.34% increase from the last price of 288.72.

Where will HD stock be in 5 years? ›

Based on our forecasts, a long-term increase is expected, the "HD" stock price prognosis for 2028-05-03 is 448.517 USD. With a 5-year investment, the revenue is expected to be around +54.41%. Your current $100 investment may be up to $154.41 in 2028.

Is HD a good dividend stock? ›

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Home Depot has lifted its dividend by approximately 22% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

What is considered a high stock dividend? ›

Dividend yields over 4% should be carefully scrutinized; those over 10% tread firmly into risky territory. Among other things, a too-high dividend yield can indicate the payout is unsustainable, or that investors are selling the stock, driving down its share price and increasing the dividend yield as a result.

Does HD pay monthly dividends? ›

How much is Home Depot's dividend? HD pays a dividend of $2.09 per share. HD's annual dividend yield is 2.69%.

How long has HD been paying dividends? ›

Historical dividend payout and yield for Home Depot (HD) since 1989. The current TTM dividend payout for Home Depot (HD) as of May 12, 2023 is $8.36. The current dividend yield for Home Depot as of May 12, 2023 is 2.88%.

What is the long term outlook for Home Depot stock? ›

HD Stock Forecast FAQ

Based on analyst ratings, Home Depot's 12-month average price target is $337.78. What is HD's upside potential, based on the analysts' average price target? Home Depot has 16.63% upside potential, based on the analysts' average price target.

What will Home Depot stock price be in 2023? ›

Home Depot Stock Forecast & Predictions: 1Y Price Target $331.57 | Buy or Sell NYSE: HD 2023 | WallStreetZen.

What is a good dividend growth? ›

At least a 2.5% dividend yield. More than 7% dividend growth rate over the last few years.

Is Home Depot a risky investment? ›

Home Depot Investment Opportunity

Home Depot has a volatility of 1.48 and is 1.66 times more volatile than NYSE Composite. 12 of all equities and portfolios are less risky than Home Depot.

Is Home Depot stock undervalued? ›

Home Depot (NYSE:HD) is a great company with a simple and easy-to-understand business model. Our DCF models based on Cash Flow Returns On Investments point to Home Depot being undervalued by 25%.

Why is Home Depot stock declining? ›

Due to declining home prices and slowing home sales, comparable-store sales fell 0.3% to mark a slowdown from the prior quarter's 4% boost. Management expects sales growth and comparable sales growth to be approximately flat in fiscal 2023 compared to fiscal 2022.

Who has the most shares in Home Depot? ›


What are the best stocks to invest in now? ›

10 Best Stocks to Buy Now—May 2023
  • U.S. Bancorp USB.
  • Taiwan Semiconductor Manufacturing TSM.
  • Wells Fargo WFC.
  • Roche Holding RHHBY.
  • Comcast CMCSA.
  • International Flavors & Fragrances IFF.
  • Anheuser-Busch InBev BUD.
May 1, 2023

Did the director of Home Depot buy a large block of stock? ›

Director Paula Santilli paid half a million dollars on Nov. 16 for 1,583 Home Depot shares, at an average price of $315.80 each, according to a filing with the Securities and Exchange Commission.

How often does HD pay dividends? ›


Is HD a blue chip stock? ›

So buying quality companies and holding them through periods of volatility is paramount for outlasting a prolonged bear market. United Parcel Service (NYSE: UPS), Target (NYSE: TGT), and Home Depot (NYSE: HD) are three blue chip dividend stocks that are on sale now.

How many times did Home Depot stock split? ›

Home Depot stock (symbol: HD) underwent a total of 13 stock splits. The most recent stock split occured on December 31st, 1999.

Which stock will double in 3 years? ›

Stock Doubling every 3 years
S.No.NameCMP Rs.
1.Guj. Themis Bio.804.85
2.Lancer Containe.138.45
3.Tanla Platforms669.30
4.Chemcrux Enterp.352.50
18 more rows

What does the future look like for Home Depot? ›

Home Depot's booming sales are slowing down

The deceleration in 2022 would mark the end of two great years of growth for Home Depot. In the fiscal year ended in January 2021, sales increased by 19.9% to reach $132 billion. And in the fiscal year ended in January 2022, it increased by 14.4% to reach $151 billion.

What is the best stock over the last 50 years? ›

Berkshire Hathaway (BRK. B (opens in new tab), $195.20), of which he is chairman and CEO, tops the list of the best S&P 500 stocks of the past 50 years, and it is the only one that does not pay a dividend.

What is the highest safest dividend stock? ›

Safe High Yielding Stocks
CompanyTickerPayout Ratio
Best BuyBBY50%
5 more rows
Mar 21, 2023

What is the downside of high dividend stocks? ›

Cons of High Dividend Yield Stocks

Even though high dividend rates are attractive, they could hurt the company's chances of growing. It seems likely that every dollar a company gives its shareholders in the form of dividends is a dollar it doesn't put back into the business to help it grow and make more capital gains.

Why is Home Depot a good stock? ›

Home Depot is a high-paying dividend stock, and it recently raised its quarterly dividend by 10% to $2.09 per share, equating to a dividend yield of about 2.7%. Shareholders should expect more dividend raises in the future, since management has paid and raised the dividend each year since 2009.

What are the 5 highest dividend paying stocks? ›

The stocks that currently have the highest dividend yields on the S&P 500 are Altria Group (MO -0.24%) (8.2%); V.F. Corp (VFC 1.74%) (6.9%); Newell Brands (NWL 0.11%) and Verizon Communications (VZ -2.18%) (6.3% each); and Simon Property Group (SPG 0.55%) (6.1%).

What are the best high dividend stocks to buy? ›

10 Best Dividend Stocks To Buy Now
Dividend ETFsDividend Yield
Broadcom Inc. (AVGO)3.0%
Lockheed Martin Corporation (LMT)2.6%
Merck & Company, Inc. (MRK)2.5%
Air Products and Chemicals, Inc. (APD)2.4%
6 more rows
May 1, 2023

What is a healthy dividend per share? ›

Generally speaking, a dividend payout ratio of 30-50% is considered healthy, while anything over 50% could be unsustainable.

Is Home Depot a growth or dividend stock? ›

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Home Depot has lifted its dividend by approximately 22% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Which company pays highest dividend? ›

List of Top Highest Dividend Paying Stocks In India 2023
CompanyDividend %Dividend
NTPC Ltd.42.54.25
HCL Technologies Ltd.-Not disclosed
REC Ltd.32.53.25
Hindustan Zinc Ltd.130026
17 more rows
Apr 25, 2023

What kind of dividend does Home Depot pay? ›

HD pays a dividend of $2.09 per share. HD's annual dividend yield is 2.61%. When is Home Depot ex-dividend date? Home Depot's previous ex-dividend date was on Mar 07, 2023.

Which is the best dividend paying stock? ›

10 high dividend-paying stocks for your FY24 portfolio
  • 1/11. Dividend Plays. ...
  • 2/11. Hindustan Zinc. ...
  • 3/11. Sanofi India. ...
  • 4/11. REC. ...
  • 5/11. Coal India. ...
  • 6/11. Swaraj Engines. ...
  • 7/11. Housing and Urban Development Corporation. ...
  • 8/11. GAIL (India)
Apr 4, 2023

What is the future outlook for Home Depot stock? ›

Stock Price Forecast

The 31 analysts offering 12-month price forecasts for Home Depot Inc have a median target of 333.00, with a high estimate of 400.00 and a low estimate of 248.00. The median estimate represents a +15.71% increase from the last price of 287.80.

What are the top 5 dividend stocks to buy? ›

10 Best Dividend Stocks To Buy Now
Dividend ETFsDividend Yield
Lockheed Martin Corporation (LMT)2.6%
Merck & Company, Inc. (MRK)2.5%
Air Products and Chemicals, Inc. (APD)2.4%
Automatic Data Processing, Inc. (ADP)2.3%
6 more rows
May 1, 2023

Why is Home Depot stock dropping? ›

It's not just the weather. Softening consumer demand has pushed Home Depot HD –0.66% to slash its outlook for the fiscal year, a move that has sent shares in the home-improvement retailer tumbling and knocked the Dow Jones Industrial Average DJIA +0.14% lower.

What is a good dividend yield? ›

What Is a Good Dividend Yield? Yields from 2% to 6% are generally considered to be a good dividend yield, but there are plenty of factors to consider when deciding if a stock's yield makes it a good investment. Your own investment goals should also play a big role in deciding what a good dividend yield is for you.

How do you make $1000 a month in dividend stocks? ›

Look for $12,000 Per Year in Dividends

To make $1,000 per month in dividends, it's better to think in annual terms. Companies list their average yield on an annual basis, not based on monthly averages. So you can make much more sense of how much you might earn if you build your numbers around annual goals as well.

Which company gives highest dividend in 2023? ›

The following are some of the highest dividend-paying stocks in India 2023:
  • INEOS Styrolution India Ltd. ...
  • Vedanta Ltd. ...
  • Indian Oil Corporation Ltd. ...
  • Rural Electricity Corporation Ltd. ...
  • Power Finance Corporation Ltd. ...
  • National Mineral Development Corporation Ltd. ...
  • Steel Authority of India Ltd. ...
  • Bharat Electronics Ltd.

How to make $500 a month in dividend stocks? ›

To build a dividend portfolio that pays you $500 in monthly dividends, you need at least 3 different stocks. One in each of the quarterly payment patterns. If you have 6 stocks, select 2 from each payment pattern. 9 dividend stocks, then choose 3 from each payment pattern.


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