Holiday Special: a deep dive into my favourite dividend growth stock
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One of my favorite dividend growth stocks of all time is Home Depot HD 0.00. A home retailer that sells a variety of different building materials, machinery, and garden products as well as pretty much anything you would need to fix something up or build something from scratch. Not only do they sell products, but part of their business model is offering installation services for things like cabinets, televisions, countertops, furnaces, flooring and much more. Finally, you can even rent tools from Home Depot if you only need them for a short period of time. A one-stop shop for all things building!
Before we dig into this company’s financial and ratio analysis, let’s go over why I like this business so much.
The reason is simple. During COVID, a period where many people had lost their jobs, made less money and were forced to stay inside, construction (especially DIY - do it yourself) skyrocketed. Even now, while interest rates continue to rise and money becomes more expensive to borrow, construction has slowed of course, but not entirely.
The point is that there’s a need for the progression of infrastructure or home improvement. Homeowners want to continue increasing the value of their homes through value-add projects, and developers want to continue the construction of highly dense buildings so they can turn a profit.
(I live in the city so this story may be different depending on where you live)
As someone who works in the Real Estate industry, I’ve seen it firsthand. The increased cost of materials had an effect on construction, but it was short-lived. While all these people continue to build and grow large cities as well as develop smaller suburban cities, they’ll need a place to get their tools and materials. That place is a retailer like Home Depot.
Here’s the trick to long-term wealth: invest in companies that make/sell products people need/use every single day.
As of today, Home Depot has a market cap of $323B and currently trading at a 19 P/E. The current share price is $315 which is ~25% off from its 52-week high, a nice little discount if you ask me.
The company’s current ratio is 1.39, which means that its current assets can cover its current liabilities 1.39x over in the event that it needs to pay its short-term obligations right away. This is a good sign while entering a possible recession.
Home Depot’s return on assets (ROA) currently sits at 22.7% which is a strong number given its large amount of inventory. Their return on investment (ROI) is also strong at 44%, which is a healthy sign for long-term growth.
Finally, their net profit margin continues to rise year over year and is currently sitting at 10.87%, as seen below. When margins are growing, that’s a sign that demand continues to remain while the company finds ways to cut operating costs.
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As for revenue, here are the stats from the past few years:
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