Are you a homeowner? If you are, you may have visited one of Home Depot's (HD 0.86%) 2,295 stores recently. But what you might not know is that this brick-and-mortar retailer could be a great stock for your stock portfolio too. With consumers moving to e-commerce, it's not only survived, but it's embraced the online shopping experience. It's a solid dividend player and may even appeal to tech investors or those playing societal trends. Let's check out what this home improvement retailer has to offer for a variety of investing styles.
It's not a Dividend Aristocrat, yet
With "only" 11 years of rising dividends under its belt, Home Depot still has more than a decade to go to be on the coveted Dividend Aristocrat list. But that doesn't mean it isn't a great stock for dividend investors. With a 51% dividend payout ratio, the DIY retailer has a lot of room to pay dividends and also absorb unexpected expenditures. For instance, the $1.7 billion paid out this year so far for coronavirus safety measures in stores and for employees is an example of a "surprise" expense that didn't affect its ability to pay dividends this year.
The trailing 12-month dividend yield is a respectable 2.17%. When you add in that the stock more than doubled in the past five years, the yield on your cost basis becomes even more attractive. But dividends aren't all that this tech-forward retailer has going for it.
Image source: Getty images.
It's a tech company in disguise
In December 2017, Home Depot announced an $11 billion investment in its One Home Depot initiative. This strategy was aimed at playing to the trend of customer purchasing habits moving online. Not only was the effort targeted to increase its online capabilities, but the retail outlet wanted to present a great experience to customers no matter how they shop. This investment has paid off. It has seen tremendous growth in its online sales, growing 80% year-over-year in the most recent quarter. But customers also benefit from its large base of stores, and in the third quarter, 60% of online orders were picked up at its brick-and-mortar locations.
Additionally, the company is investing in its back-office infrastructure to ensure a more flexible and responsive supply chain. It's using artificial intelligence to drive improvements for its "in stock" rates, the percentage of time an item is available on the shelf or online for customers. Always having inventory available is important for a positive brick-and-mortar shopping experience, and so that customers are encouraged to come back again and again.
But even if tech isn't your thing, this retail specialist is playing to some growing trends.
It's playing multiple trends
The trends of work-from-home, e-commerce, and aging housing are strong trends that could power consumer spending for years to come. Even with a COVID-19 vaccine on the horizon, many companies are expected to provide employees with more flexible work-from-home options. The company has also seen tremendous demand from do-it-yourselfers who want to create a better space for an office, or who are just tackling that list of improvements. As we all are spending more time in our homes, making upgrades to make our space more livable has become a priority, and this home improvement retailer has benefited.
We've already discussed the company's focus on e-commerce, so let's look at the age of houses in the U.S. It's estimated that over 50% of all homes in the U.S. are over 40 years old, and around 80% are over 20. The owners of these sweet old houses are likely to spend more money on maintenance and upgrades, and many will frequent Home Depot stores in the process.
The bottom line for investors
Home Depot is an easy-to-understand business, which makes it attractive for beginner investors looking for a familiar brand to build their portfolios around. But this brick-and-mortar retailer has so much more going on that its stock is likely to appeal to a wide variety of investors. Maybe those investors working hard to find their next stock buy should take a look at this quality operator. Your next great investment could be hiding right in front of you.
