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Home Depot: A Solid 'Buy' Candidate This Year

March 31, 2012 | About:
I have forever been an admirer of growth and value stocks, especially in recent times. The more the economy appears to flutter, the more fascinating these stocks are to me. Below I have gathered data for Home Depot that I wish to have in my portfolio or I would like to add because of their successive positive earnings results, regardless of the international meltdown.

In addition to its earnings being outstanding, this stock also has an astonishing 52-week price rise and has an above industry average payout ratio on its dividend. I am a huge fan of dividend investing as it provides a stable stream of earnings to live off of, whether it is monthly or quarterly. It offers strong expansion opportunity and stock value that is great for any portfolio and it pays dividends.



100th Consecutive Quarter of Dividend Paying:

The Home Depot (HD), the world's biggest home improvement retailer, recently declared that its board of directors announced a fourth quarter cash dividend of $0.29 a share. The dividend was to be paid on March 22, 2012, to shareholders of record on the settlement of business on March 8, 2012. This is the 100th consecutive quarter the company has given a cash dividend.

Frank Blake, Chairman and CEO of The Home Depot, commented about the dividend that in 2012, as in the previous several years, they will stay focused on disciplined capital allocation and maximizing shareholder return. He further added that they will carry on making the essential investments in their business and return surplus cash to their shareholders by means of share repurchases and dividends. They hiked the dividend two times in 2011, and are aiming for a 50% payout ratio going ahead.



Dividend History:

The Home Depot has a long history of providing dividends to its investors. Let’s take a look at the company’s dividend history from 2000 to present. In 2000, the company paid a dividend of $0.04 a share and then continued to increase its dividend in almost every year.

The company’s ever increasing dividend has now reached $0.29 a share from the $0.04 a share over the previous decade.

History has disclosed that the top performing stocks during the prior decades have been those that gave ever-growing cash to shareholders in the shape of dividends. Most dividend analysis I have seen out there is traditional, meaning it depends on what the company has done in the history. While examining historical trends is significant, I think assessing what may happen in the future is even more vital.



Fourth Quarter Earnings Highlights:

Home Depot, which announced a 32% increase in its fiscal fourth quarter earnings Tuesday, stated it anticipates seeing constant growth this year on broader indications of an energizing home-improvement market.

For the quarter closed January 29, Home Depot announced a profit of $774 million, or $0.50 per share, against a year-ago profit of $587 million, or $0.36 per share.

Sales advanced 5.9% to $16.01 billion. Analysts anticipated $0.42 cents per share on sales of $15.51 billion.

In the most recent period, Home Depot announced that same-store sales increased 5.7% and added 6.1% in the US. Average ticket and transaction volume sustained to rise, with the former up 2.4% and the latter rising 3.6%. Sales per square foot increased 6% following a 4.1% in the third quarter. Sales deals, or tickets, valued at $900 or more advanced 3%.



Positive Outlook for FY 2012:

On February 21, 2012, Home Depot as well stated it anticipated further development in the 2012 fiscal year. The company expected a complete-year profit of $2.79 per share on 4% sales expansion, counting benefits from share buybacks and an additional week of sales. Analysts polled by Thomson Reuters anticipated $2.77 per share in earnings, and their consensus sales forecast showed 3.1% expansion.

Home Depot stated it intended to make almost $3.5 billion in share buybacks this FY. In November, the company stated it was planning to complete the $6.8 billion of share buybacks under its existing approval by the close of fiscal 2014. The continual focus the Home Depot places on rewarding consumers and investors makes this stock a must for investors looking for long term growth and short term returns with dividends.



Buy The Stock as More Growth Expected:

The present market price is around $50 with median analyst price target of $51. In the previous year, the stock has marked a 52-week low of $28.13 and 52-week peak of $48.07 with a 52-week return of 30.03%. Regardless of the housing crisis putting 2011 home sales to incredibly low numbers, Home Depot has weathered the worst of the economic storm.

Home Depot's existing revenue growth of 2.3% is significantly higher than its five-year average of -2.29% which demonstrates great indications of improvement in the near term.

Its price to earnings ratio is 19.12 where its direct competitor, Lowe's (LOW) had a 20.53 in P/E.

Based on P/E to trailing month, Home Depot presently trades at a 3% discount to its Home Improvement Retailers Industry competitors. Regardless of the discounted price, Home Depot's fundamental ratios are comparatively in-line or better than its competitors.

Regardless of the fear and ambiguity in the housing market, I think its diverse portfolio and strong fundamentals will direct it to more expansion this year and beyond.

About the author:

Dividend King
I am primarily an investor interested in creating passive income streams through dividends. I focus on finding and analyzing dividend paying stocks, MLPs and REITs that are a good fit for income investors.

I practice Judaism and my faith is very important to me. I visit family in Israel once a year, but I am educated and work in the United States where I hold an MBA and a bachelor’s in English. I am a patient man, enjoy wine but am not a connoisseur, and I listen more than I speak.

Visit Dividend King's Website


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