The Home Depot, Inc. (HD): Can This Home Improvement Retailer Improve Your Portfolio?

Building shareholder wealth

A huge plus for The Home Depot, Inc. (NYSE:HD)’s shareholders is that the company is firmly committed to sharing its success with investors. Earlier this year, the company raised its dividend by 34% and authorized a $17 billion share-repurchase program.

Like Home Depot, Lowe’s is determined to return the company’s cash flow to shareholders in the form of dividends and share buybacks. For the fiscal year, the company repurchased $4.35 billion or 146 million shares of common stock and paid $704 million in dividends. Furthermore, the Board of Directors has authorized the repurchase of up to $5 billion of the company’s common stock, expected to be completed over the next couple years.

Should you buy Home Depot?

Home Depot is an extremely strong company executing on its growth targets. The company is clearly performing much better than its close rival Lowe’s within the home improvement retailer landscape. To illustrate, consider that the recently released quarterly results marked the 16th straight quarter that Lowe’s posted weaker same-store sales than Home Depot.

On a stand-alone basis, The Home Depot, Inc. (NYSE:HD) is a classic example of a business that is better than its stock. Home Depot has racked up impressive share price gains in recent months, and as a result, trades for a fairly unattractive price.

The stock is off its recent multi-year highs, but still exchanges hands for more than 23 times trailing earnings, well ahead of the broader market’s valuation.

Moreover, while the company’s dividend growth has been fantastic in recent years, The Home Depot, Inc. (NYSE:HD) yields just 2.1%, less than the yield on the 10-Year U.S. Treasury Bond and only about on par with the yield on the S&P 500 Index.

As a result, I’d advise patient value investors to wait for a more meaningful downturn of 10%-15% in Home Depot shares before pulling the trigger.

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