We recently compiled a list of the 12 Best Dividend Stocks For Steady Growth. In this article, we are going to take a look at where The Home Depot, Inc. (NYSE:HD) stands against the other dividend stocks.

It’s well understood how crucial dividend growth stocks are for investors. Although dividend stocks have been moving at a slow pace recently, largely due to the AI stock boom, their long-term value remains undeniable. Investors appear to be increasingly drawn to dividend growth strategies, recognizing that the focus should now be on growth rather than just yield. The Dividend Aristocrat Index stands out as a strong investment opportunity, offering an average yield of about 2.4%, trading at roughly 23 times earnings, and projected to achieve an average annual earnings growth of 7% over the coming years.

Also read: 10 Best Dividend Aristocrats According to Wall Street Analysts

During the second quarter, US equity markets saw gains, driven by ongoing excitement around artificial intelligence technology, which led to a notable rise in growth stocks. Analysts believe that dividend-paying equities, supported by strong fundamentals, sustainable growth prospects, and solid balance sheets, are well-positioned to benefit from continued economic growth. The current market environment has somehow blurred the line between tech and dividend stocks, especially as major tech companies have introduced dividend policies this year. Whether these companies can continue to raise their payouts remains to be seen. However, the outlook for dividend growth appears promising. In the first quarter, US companies increased their cash reserves to a record $4.11 trillion, aided by a resilient economy and relatively high interest rates, which has accelerated the dividend growth process. According to S&P Dow Jones Indices, over 175 companies in the S&P 500 announced a dividend increase or initiated a dividend during the first half of 2024.

Another factor boosting the significance of dividend growth stocks is the upcoming Federal Reserve interest rate decision in September. Paul Baiocchi from SS&C ALPS Advisors considers this a prudent strategy, as he expects that the Fed will begin easing rates. The chief ETF strategist made the following comments while speaking at CNBC’s “ETF Edge”:

“Investors are moving back toward dividends out of money markets, out of fixed income, but also importantly toward leveraged companies that might be rewarded by a declining interest rate environment.”

He further said:

“You’re looking for dividends as part of the methodology, but you’re looking at dividends that are durable, dividends that have been growing, that are well supported by fundamentals.”

Various reports have indicated that while dividend growth companies may not deliver immediate rewards, they offer substantial long-term benefits. Nuveen, a financial planning firm based in Illinois, provided an optimistic outlook on dividend growth strategies this year, emphasizing their historical performance. The report suggested that companies focused on dividend growth possess valuable long-term characteristics and are well-positioned for strong relative performance in the year ahead. Over time, companies that consistently increase or initiate dividends have achieved higher annualized returns with lower volatility compared to other equity market segments. Although dividend growth companies may not outperform in every market environment, their robust risk-adjusted returns over extended periods make them an ideal foundation for any equity portfolio. With that, we will take a look at some of the best dividend stocks for steady dividend growth.

Our Methodology:

For this list, we screened for dividend stocks with a 5-year average dividend growth rate of above 10%. From that list, we picked stocks with dividend growth track record of at least 10 years. The stocks are ranked in ascending order of their annual average dividend growth in the past five years.

We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 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).

The Home Depot, Inc. (NYSE:HD)

5-Year Average Dividend Growth: 12.67%

Consecutive Years of Dividend Growth: 14

The Home Depot, Inc. (NYSE:HD) is a Georgia-based home improvement company that sells related construction products and offers services to its consumers. During the second quarter of 2024, the long-term fundamentals driving demand for home improvement remain solid. However, elevated interest rates and increased macroeconomic uncertainty weighed on consumer demand overall, leading to reduced spending on home improvement projects. Nevertheless, the company effectively managed these challenges while maintaining strong execution.

The Home Depot, Inc. (NYSE:HD) is also impacted by high interest rates due to its dependence on the housing market. Over the past two years, elevated interest rates have dampened the housing market, resulting in fewer people buying existing homes or undertaking major renovations, as these activities have become less affordable. In the second quarter of 2024, the company reported revenue of over $43 billion, which showed a modest growth of 0.6% from the same period last year.

Polen Capital also highlighted this interest rate sensitivity in its Q2 2024 investor letter. Here is what the firm has to say:

“In the second quarter, the top relative contributors to the Portfolio’s performance were all names we do not hold: The Home Depot, Inc. (NYSE:HD), Meta Platforms, and AbbVie. With Home Depot, much of the quarter’s weakness came in April, as a higher-than-expected inflation reading caused investors to question the likelihood of imminent rate cuts in 2024. Given Home Depot’s sensitivity to interest rates, as it relates to home improvement projects, the stock sold off in the period.”

That said, The Home Depot, Inc. (NYSE:HD) the company is expected to recover since consumer behavior tends to follow cyclical patterns. Stocks that benefit from economic upturns are often in the midst of a significant long-term growth trend. In addition, the company’s cash position is strong. In the most recent quarter, it reported an operating cash flow of nearly $11 billion.

The Home Depot, Inc. (NYSE:HD), one of the best dividend stocks, currently pays a quarterly dividend of $2.25 per share. The company has been rewarding shareholders with growing dividends for the past 14 years and has raised its payouts at an annual average rate of 12.67% over the past five years. As of August 23, the stock has a dividend yield of 2.40%.

The Home Depot, Inc. (NYSE:HD) was a popular stock among elite funds during Q2 2024, as 86 funds were bullish on the company, growing from 70 in the preceding quarter, according to Insider Monkey’s database. The stakes held by these hedge funds are collectively worth over $6 billion. Among these hedge funds, Fisher Asset Management was the company’s leading stakeholder in Q2.

Overall HD ranks 9th on our list of the best dividend stocks for steady growth. 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 timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than HD but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

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Disclosure: None. This article is originally published at Insider Monkey.