When it comes to dividend stocks, Home Depot(NYSE: HD) is a bellwether thanks to its long commitment to paying out a portion of its profits to shareholders. The home improvement retailer currently pays a quarterly dividend of $2.25 per share, resulting in an annual payout of $9 per share.
For any mature dividend-paying stock, it's essential to examine its history and payout ratio to determine possible growth. Let's examine Home Depot's dividend and its stock's potential.
Home Depot prioritizes its dividend
Home Depot has paid a quarterly dividend since 1987 and raised it for 15 consecutive years. The company paused its dividend raises twice as a public company, in the early 2000s and during the Great Recession. But at no time during its history has Home Depot ever cut its dividend.
The company's payout ratio -- the percentage of earnings a company pays out as dividends -- is 58.4%. For reference, any time a payout ratio is above 75% for a sustained period, investors should generally be concerned that a company may pause dividend increases or cut it altogether to stabilize its business. That cash might be more valuable elsewhere. Given the ample room for error around Home Depot's payout ratio, investors can reasonably expect management to continue to raise its dividend for the foreseeable future.
Home Depot is preparing for a housing boom
Although the company faced declining sales and reduced profits due to rising interest rates that weighed on homeowners, the stock has delivered a robust 12% total return in 2024.
As the company waited for interest rates to fall, it acquired SRS Distribution, a building-products distributor, for approximately $18.25 billion. The acquisition increased the company's net debt by 34.1% in 2024 to $54.1 billion, but management believes the addition will add $50 billion of potential annual revenue to its total addressable market.
Management will need to keep its debt in check, but there's no reason to doubt the long-term dividend stock anytime soon. It continues to be the market leader in the home improvement space.
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Collin Brantmeyer has positions in Home Depot. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.
