We recently compiled a list of the 10 Dividend Stocks For Steady Income.In this article, we are going to take a look at where The Home Depot, Inc. (NYSE:HD) stands against the other dividend stocks.
Generating income has consistently been a primary goal for investors. To achieve this, they often opt for investments that provide steady and reliable returns over time. Dividend stocks are particularly popular in this regard, as they are well-regarded for offering regular income. Although using cash payouts from a stock portfolio is a popular approach among individuals nearing retirement, building an equity income portfolio is an option available to anyone. Over the years, dividends have significantly enhanced investors’ overall returns, making these stocks a compelling choice for income-focused portfolios. In certain periods, especially when equity returns fell below 10%, dividends have accounted for more than half of the total returns of major market indices, according to LSEG data.
Investors are increasingly emphasizing the quality of a company’s earnings. Examining factors such as dividends per share, dividend growth, and the stability of dividend payments can provide valuable insights into a company’s financial stability. Those who prioritize businesses with lower debt levels and higher profitability often target well-established, financially robust firms with greater flexibility. These high-quality companies typically demonstrate stronger resilience during market downturns and are more likely to sustain earnings growth across different market conditions.
According to a report by BlackRock, historically, stocks that consistently grew or maintained their dividends have delivered better performance compared to those that either did not pay dividends or reduced their payouts. During market downturns, dividend-paying stocks often provide a buffer against the volatility of share prices. Companies that issue dividends typically strive to maintain these payments and are generally reluctant to reduce them unless absolutely unavoidable.
When investing in dividend stocks, investors often evaluate the dividend yield. Experts recommend focusing on yields within the 3% to 6% range, as higher yields may indicate potential yield traps. Brian Bollinger, president of Simply Safe Dividends, has also emphasized this point. Here are some comments from the analyst:
“I generally like to advocate for an approach of targeting great businesses that might pay closer to a 3% to 4% dividend yield.”
He further mentioned that these companies tend to gradually increase their payouts, which can enhance annual income streams and help counter the impact of inflation. Regarding companies with lower yields, he noted that they are often associated with more secure businesses and more reliable dividend payments. For example, the Dividend Aristocrat Index, which monitors companies with at least 25 years of consistent dividend growth, has an indicated yield of 2.28%. According to Bollinger, many of the firms in this index are well-established and financially stable. He suggested that creating a diversified portfolio of these companies can provide reassurance, as it builds a solid foundation for a growing stream of passive income, regardless of market fluctuations. He further said:
“When stock prices fall, it’s so easy to panic, but dividend investing can overcome that because you’re just trying to stay focused on your income stream. You don’t care so much about the markets’ short-term ups and downs anymore.”
As a result, investors often include dividend stocks in their portfolios.
Our Methodology:
For this list, we first filtered dividend stocks that have shown at least 10 consecutive years of dividend growth. From this group, we selected those with dividend yields above 1.5% as of December 20. Lastly, we chose 10 companies that have achieved a share price return of over 30% over the past five years. The stocks are ranked in ascending order of their dividend yields as of December 20. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A home improvement store overflowing with a variety of products and supplies.
Dividend Yield as of December 20: 2.32%
5-Year Share Price Return: 75.2%
The Home Depot, Inc. (NYSE:HD) ranks seventh on our list of the best stocks with steady dividends. The American multinational home improvement retail company sells appliances, tools, construction equipment, and related products. In the third quarter of 2024, the company reported $40.22 billion in revenue, reflecting a 6.6% increase compared to the same quarter the previous year. The company recorded an operating income of $5.4 billion with an operating margin of 13.5%. Growth was supported by stronger customer interest in seasonal items and outdoor projects, as well as increased sales driven by hurricane-related demand.
This year, The Home Depot, Inc. (NYSE:HD) encountered difficulties stemming from growing macroeconomic uncertainty, which weakened consumer demand and resulted in lower spending on home improvement projects. In the most recent quarter, same-store sales dropped by 1.3% compared to the previous year—an unfavorable result for a retail-driven business. Management expects this declining trend to continue through the rest of the fiscal year. That said, the stock has surged by over 13.5% since the start of 2024.
This was also highlighted by Carillon Tower Advisers in its Q3 2024 investor letter. Here is what the firm has to say:
“While Home Depot, Inc.’s (NYSE:HD) recent reported earnings were somewhat tepid, the market seems to be pricing in an inversion of the company’s sales, driven by lower interest rates. Home Depot reported its seventh consecutive quarter of same-store sales declines, giving back substantial gains that it enjoyed during the pandemic. High mortgage rates have also put a damper on existing home sales. People typically spend the most on home repairs and improvements in years when they buy or sell houses, often conducting both transactions in the same year.”
During the first nine months of the year, The Home Depot, Inc. (NYSE:HD) generated more than $15 billion in operating cash flow. This solid financial position enables the company to maintain its status as a generous dividend payer. The company has been rewarding shareholders with growing payouts for the past 14 consecutive years. It currently offers a quarterly dividend of $2.25 per share and has a dividend yield of 2.32%, as of December 20.
Insider Monkey’s database of Q3 2024 indicated that 82 hedge funds held stakes in The Home Depot, Inc. (NYSE:HD), compared with 86 in the previous quarter. These stakes are collectively valued at nearly $7.6 billion.
Overall HD ranks 7th on our list of the best stocks with steady dividends. While we acknowledge the potential of HD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than HD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
