Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

The Home Depot, Inc. (HD): After a Huge Dividend Increase, is This Retailer a Buy?

Page 1 of 2

The Home Depot, Inc. (NYSE:HD), the biggest home improvement store chain in the country, jumped 6% higher on Feb. 26 after reporting that its fourth-quarter net income rose 32% on the strength of U.S. sales and the cleanup that followed Superstorm Sandy.  In addition, rising home sales and consumer confidence also played into the thesis that Home Depot’s business is thriving.  Even better, the company raised its dividend by 34% and authorized a $17 billion share-repurchase program.  In light of all this, is Home Depot a bargain at its current price?

The Home Depot, Inc. (NYSE:HD)The Home Depot, Inc. (NYSE:HD) reported sales of $18.2 billion for the fourth quarter of fiscal 2012, a strong 14% increase from the fourth quarter of fiscal 2011. It’s worth noting that the fourth quarter of fiscal 2012 consisted of 14 weeks compared with 13 weeks for the prior year, but even excluding the extra week, fourth-quarter sales still increased by 6.3% year over year.

Earnings per diluted share in fiscal 2012 were $3, compared to $2.47 per diluted share in fiscal 2011, an increase of 21.5% year over year. These results reflect a nonrecurring charge of $0.10 per diluted share.  On an adjusted basis, earnings per diluted share in fiscal 2012 were $3.10, representing an increase of 25.5% versus the prior year.

Stronger Performance than its Closest Peer

Fellow home improvement retailer Lowe’s Companies, Inc. (NYSE:LOW) was also higher on the day of Home Depot’s results.  Lowe’s shares a similar valuation profile as Home Depot, trading for approximately 22 times its trailing twelve month earnings per share.  Lowe’s offers a dividend as well as Home Depot, but the yield on Lowe’s is below 2%, unlikely to lure in many income-oriented equity investors.

Lowe’s released fourth-quarter results of its own the same week as Home Depot.  For its part, the company reported diluted earnings per share for the fourth quarter and full fiscal year of $.26 and $1.69, respectively.  Full-year sales inched up less than 1% versus 2011.  Slow sales growth hasn’t stopped shares of Lowe’s from rallying:  the stock is sitting at all-time highs, having increased more than 40% since the beginning of 2012.

Like The Home Depot, Inc. (NYSE:HD), Lowe’s is determined to return the company’s cash flow to shareholders in the form of dividends and share buybacks.  For the fiscal year, the company repurchased $4.35 billion or 146 million shares of common stock and paid $704 million in dividends.   Furthermore, the Board of Directors has authorized the repurchase of up to $5 billion of the company’s common stock, expected to be completed over the next couple years.

Home Depot’s value proposition

To be fair, The Home Depot, Inc. (NYSE:HD) isn’t a screaming bargain.  New investors are paying almost 22 times the stock’s 2012 diluted earnings per share.  In addition, even including the massive dividend increase, Home Depot’s dividend yield is currently 2.3% annually, a good rate but not much higher than the yield on the broader market.  That being said, Home Depot enjoys much higher sales growth and a bigger dividend yield than its closest competitor Lowe’s.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!