Will Home Depot Raise Its Dividend in 2018?

Home Depot (HD 1.50%) has produced amazing gains in recent years because of the rebound in the housing market after the financial crisis, but that's only been the crowning achievement in a longer track record of 20%-plus average annual returns dating back to the 1980s. By appealing both to do-it-yourselfers and to the contractors who help less ambitious homeowners with the projects they need done, Home Depot has found ways to maximize its total growth. Home Depot has also become a nascent dividend growth leader, and even though its streak is far shorter than that of its main rival in home-improvement retail, it nevertheless makes the stock even more attractive. Let's take a closer look at Home Depot and what its prospects for a higher dividend look like in 2018.

Dividend stats on Home Depot

Data source: Yahoo! Finance. Last increase refers to ex-dividend date.

Look how Home Depot's dividend has soared

Dividend growth has been a key priority for Home Depot in recent years. Early in 2017, the company made an extremely aggressive increase, giving shareholders a 29% rise in the amount of its quarterly payment to $0.89 per share. That followed annual increases in the seven previous years that ranged from 16% to 34%.

That was quite a bit stronger than the mid-single-digit percentage growth that Home Depot exhibited before the financial crisis. The beginning of the boost came in the face of a fundamental change in the way that the home-improvement retailer decides how to return its capital to its investors. In particular, Home Depot raised its payout ratio target from 40% to 50% about six years ago. Since then, earnings growth has been fast enough to power impressive rises in the dividend without extending Home Depot's payout ratio to uncomfortably high levels. Strong industry conditions in housing and a good corporate strategy that the company has executed well all point to Home Depot's success over the past decade.

HD Dividend data by YCharts.

What's ahead for Home Depot?

Increasingly, Home Depot has come to rely on its having broadened its customer base. Originally, Home Depot focused squarely on the do-it-yourself homeowner, seeking to facilitate purchases for those who were handy enough to handle their own repairs and other home projects. By doing so, Home Depot implicitly assumed that professional contractors had close ties with rivals that would generally foreclose its being able to woo away their business. Recently, more of its growth has come from its Pro customers, who include not only contractors but also property managers, installers, and other specialty personnel. Pro makes up about 40% of total sales, and that number is growing faster than the company's corresponding sales from nonprofessionals. If those trends continue, then even more profit could fall to Home Depot's bottom line.

Image source: Home Depot.

Home Depot has also increased its commitment to dividend investors. When it raised its payout earlier this year, Home Depot also boosted its target payout ratio to 55%, allowing an even more generous growth rate going forward.

Will Home Depot raise its dividend in 2018?

Investors expect strong growth for Home Depot earnings in the years to come, and that should lead to corresponding double-digit percentage gains in the dividend that the home-improvement giant pays out. Shareholders can't expect too much higher a payout ratio than the new 55% mark, but they can count on a rising bottom line to help fuel Home Depot's dividend growth in 2018 and beyond, with a higher payout likely coming next March.