Will Home Depot Raise Its Dividend in 2020?

Home Depot (HD -0.31%) is a leader in the retail sector, with its home improvement business having capitalized on the upsurge in interest in home ownership over time. With a business model that caters both to those who like to handle their own repairs and maintenance as well as those who work as professional contractors in the industry, Home Depot has worked hard to grow its business, and it's been largely successful in doing so.

Home Depot's financial success has allowed it to share its profits with shareholders in the form of dividends. The company extended its streak of annual dividend increases to 10 years in 2019, but investors are hungry for more. Let's take a closer look at Home Depot and its prospects to deliver an 11th straight year of higher payouts in 2020.

Dividend stats on Home Depot

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

A healthy history of dividend growth

Home Depot was late in coming to the realization that dividends matter to investors. For much of its history, the home improvement retailer's dividend increases were modest and fairly unremarkable. Then, when the housing market collapsed in the mid-to-late-2000s, Home Depot hit the pause button on dividend increases for several years.

It was early 2010 when Home Depot started to push its dividend upward again, and by 2011, the company was wasting no time in promoting lightning-fast dividend growth. Increases of as much as 35% came regularly year after year, and over the course of a decade, Home Depot's quarterly payout multiplied sixfold. The most recent increase added $0.33 per share to the dividend, bringing it to $1.36 per share each quarter.

HD Dividend data by YCharts.

Some companies specifically tie their dividends to their earnings, and that's been a big boon for Home Depot. By increasing the portion of its earnings it seeks to pay out in dividends from 40% to 50% about a decade ago, the home improvement retailer ensured that shareholders would enjoy direct rewards from its earnings growth success.

What's next for Home Depot?

As well as Home Depot has done over the long run, the company still seems to have a solid strategic vision. The One Home Depot plan has continued to pay off for the retailer, with efforts to serve customers better and improve the experience for shoppers through multiple channels. Rather than expanding its store network, Home Depot has worked to improve its existing stores and build out an e-commerce portal that can take advantage of new technology and give customers choices in how they get what they need.

Image source: Home Depot.

That said, there's some concern about the sustainability of the housing boom over the past decade. Interest rates remain extremely low, and that's kept mortgage costs affordable. If something were to change that dynamic, though, then Home Depot might find itself vulnerable to waning interest from homeowners. Moreover, a general pullback in the economy might reduce both disposable income from do-it-yourselfers and the amount of business professional contractors get from clients.

Will Home Depot raise its dividend in 2020?

The key to dividend growth for Home Depot is earnings growth, and thus far, the retailer hasn't seen a lot of improvement. Net income has been flat during the first three quarters of the year, and only the reduction in share counts resulting from stock buybacks has boosted earnings on a per-share basis.

With bottom-line gains currently amounting to about 5%, Home Depot will likely slow the pace of its dividend growth. A 5% increase would bring the payout to $1.43 per share each quarter. Given the returns the stock has provided, most investors would be satisfied with that -- even if it was the first signal that the end of supersized dividend hikes had finally come.