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The Home Depot, Inc. (NYSE:HD) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that The Home Depot, Inc. (NYSE:HD) is about to go ex-dividend in just 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Home Depot's shares before the 31st of May in order to receive the dividend, which the company will pay on the 15th of June.
The company's next dividend payment will be US$2.09 per share, on the back of last year when the company paid a total of US$8.36 to shareholders. Looking at the last 12 months of distributions, Home Depot has a trailing yield of approximately 2.9% on its current stock price of $286.75. If you buy this business for its dividend, you should have an idea of whether Home Depot's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Home Depot
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Home Depot's payout ratio is modest, at just 48% of profit. A useful secondary check can be to evaluate whether Home Depot generated enough free cash flow to afford its dividend. Dividends consumed 61% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Home Depot's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Home Depot's earnings per share have been growing at 18% a year for the past five years. Home Depot has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Home Depot has lifted its dividend by approximately 22% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
From a dividend perspective, should investors buy or avoid Home Depot? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.
On that note, you'll want to research what risks Home Depot is facing. Case in point: We've spotted 2 warning signs for Home Depot you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
What are the risks and opportunities for Home Depot?
Rewards
Earnings are forecast to grow 3.99% per year
Earnings grew by 1.4% over the past year
Risks
Significant insider selling over the past 3 months
Has a high level of debt
Further research on
Home Depot
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
About NYSE:HD
Established dividend payer with acceptable track record.
