We recently published a list of the 11 Best Retail Dividend Stocks to Buy. In this article, we are going to take a look at where The Home Depot, Inc. (NYSE:HD) stands against other best retail dividend stocks.
The retail industry has been undergoing a digital transformation since the COVID-19 pandemic. The industry has shifted from a broad, supply-driven model to a more data-focused, ultra-personalized approach adjusted according to individual customers. However, the transition was challenging due to elevated costs and the complexities of existing business models and legacy systems.
According to a report by Deloitte, the industry has experienced slow growth in recent years, with a compound annual growth rate ranging between 1.5% and 3.5%, depending on the sub-sectors. Profit margins also remained under pressure because of consumers’ expectations for seamless omnichannel experiences. Digital adaption was needed, but the costs associated with it created a growing hunger for retailers to increase efficiency, establish strategic partnerships, and investigate alternative revenue streams to remain relevant and competitive.
As retailers strive to improve operations with limited resources, technology and automation have emerged as promising solutions. Generative artificial intelligence, in particular, has moved beyond initial hype and is generating measurable benefits. According to Deloitte, retailers that integrated AI-powered chatbots during Black Friday experienced a 15% improvement in conversion rates. The report also mentioned that six in ten retail buyers reported that AI-enhanced tools improved demand forecasting and inventory management in 2024. Digital efficiency has become a priority, and 2025 could mark a turning point for advancements in several fields, including merchandising, supply chain management, and marketing. Notably, seven in ten retail executives expect to implement AI capabilities within the year to enhance personalization efforts.
Consumer spending in February grew at a slower pace than expected. However, underlying data suggested that sales were strong despite concerns about economic slowdown and high inflation. The report was released during high uncertainty over economic growth, especially as President Donald Trump’s policies led to surging tariff disputes with important US trading partners. Economists have shown their concerns that these tariffs could contribute to higher inflation and weaken economic momentum. Retail sales for February rose by 0.2%, rebounding from the previous month’s downwardly revised 1.2% decline but missing the Dow Jones estimate of a 0.6% increase, as per preliminary data from the Commerce Department. The data also highlighted that retail sales climbed 0.3%, excluding auto sales, which aligned with market expectations.
According to the report, online spending played a key role in driving sales growth for the month, as nonstore retailers reported a 2.4% growth. In addition, health and personal care sales also experienced a 1.7% hike, while the food and beverage sectors saw a 0.4% growth. On the whole, retail sales grew 3.1% as compared to the same period last year, outperforming the 2.8% inflation rate measured by the consumer price index.
The retail sector has largely stabilized since the pandemic, making it an investment area worth considering. Investors are gravitating toward this sector, aiming to capitalize on growing consumer demand. Moreover, the sector is known for its history of providing dividend payments to shareholders. According to a report by Janus Henderson, the general retail sector distributed $8.4 billion in dividends in the third quarter of 2024, up significantly from $2.8 billion paid during the same period in 2020.
A home improvement store overflowing with a variety of products and supplies.
Our Methodology
For this article, we scanned Insider Monkey’s database of over 1,000 hedge funds as of Q4 2024 and picked companies that operate in the retail industry. These companies sell goods and services directly to consumers for personal use and operate through physical stores, online platforms, or a combination of both. From that list, we picked 11 stocks with the highest number of hedge fund investors and ranked them in ascending order of the hedge funds’ sentiment towards them.
At Insider Monkey, we are obsessed with hedge funds. 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 88
The Home Depot, Inc. (NYSE:HD) ranks third on our list of the best dividend stocks in the retail sector. The American home improvement company offers tools, appliances, construction products, and related services. It caters to both DIY enthusiasts and professionals. The company operates through physical stores and online channels. On March 19, the company became the sole big-box retailer for KILZ primer products in the US and Puerto Rico, further solidifying its collaboration with Behr Paint. This initiative enhances product availability for professionals, ensuring easier access to reliable primers in stores, online, and via delivery services.
In the fourth quarter of 2024, The Home Depot, Inc. (NYSE:HD) reported revenue of $39.7 billion, which saw a 14% growth from the same period last year. For the fiscal year 2025, the company forecasts a total sales increase of approximately 2.8%, with comparable sales expected to rise by around 1% over the same 52-week period. Additionally, plans are in place to expand its presence with roughly 13 new store openings, while the gross margin is projected to be around 33.4%.
The Home Depot, Inc. (NYSE:HD) closed the quarter with more than $1.65 billion in cash and cash equivalents. Throughout FY24, the company generated nearly $20 billion in operating cash flow, highlighting its strong financial position. This stability has allowed it to sustain an uninterrupted streak of dividend payments for 152 consecutive quarters. On February 25, the company raised its dividend by 2.2% to $2.30 per share, marking its 15th consecutive year of dividend growth. The stock supports a dividend yield of 2.57%, as of March 29.
Overall, HD ranks 3rd on our list of the best retail dividend stocks to buy. While we acknowledge the potential of HD as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than HD but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
