Round one: endurance
According to Dividata, The Home Depot, Inc. (NYSE:HD) began paying dividends in 1987 and has been paying ever since for a solid 25-year streak. Hewlett-Packard Company (NYSE:HPQ), on the other hand, has been consistently paying its shareholders back since 1965 — first on a biannual basis, and then quarterly beginning in 1970. There aren’t many tech companies with better records.
Round two: stability
Paying dividends is well and good, but how long have our two companies been increasing their dividends? The same dividend payout year after year can quickly fall behind a rising market, and there’s no better sign of a company’s financial stability than a rising payout in a weak market (so long as it’s sustainable, of course). Home Depot held its dividend payment steady from 2006 through 2009, so its streak of annual increases only begins in 2010. That’s actually better than beleaguered HP, which held dividends steady for more than a decade (with the exception of one special dividend in 2000) before increasing its payouts in 2011. This round goes to the upstart.
Round three: power
It’s not that hard to commit to paying back shareholders, but are these payments enticing or merely token? Let’s take a look at how both companies have maintained their dividend yields over time as their businesses and share prices have grown:
HD Dividend Yield data by YCharts.
All in all, Home Depot has simply maintained a stronger dividend yield over time; HP’s spike coincides with a deep share-price slump, rather than an increase in the payout. Because Home Depot spent so much more time on top, and because its latest payout hike (a hefty 35% boost) took yields back to nearly 2%, it has to win this round, dispite HP’s current narrow lead.
Round four: strength
A stock’s yield can stay high without much effort if its share price doesn’t budge, so let’s take a look at the growth in payouts over the past five years. If you bought in several years ago and the company has grown its payout substantially, your real yield is likely to look much better than what’s shown above.
HD Dividend data by YCharts.
Surprisingly, HP sneaks ahead with a recent surge. You might not be too happy with the way share prices have been going since 2011, but at least you’re earning nearly twice as much each quarter as you used to.
Round five: flexibility
A company needs to manage its cash wisely to ensure that there’s enough available for tough times. Paying out too much of free cash flow in dividends could be a warning sign that the dividend is at risk, particularly if business weakens. This next metric analyzes just how much of their free cash flows our two companies have paid out in dividends over the past several quarters:
HD Cash Div. Payout Ratio TTM data by YCharts.
HP comes from behind to win in a squeaker. The venerable tech company has more wiggle room to raise its dividend — and if recent history is any guide, HP is likely to keep boosting its payouts in the future as well. Do you think HP has a stronger claim to the dividend crown, or are these numbers only obscuring an underlying business weakness that should tip investors toward Home Depot?
The article Home Depot vs. Hewlett-Packard: Which Dow Stock’s Dividend Dominates? originally appeared on Fool.com.
Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.The Motley Fool recommends Home Depot.
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