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My Best Dividend Stock for 2022

By Parkev Tatevosian, CFA – Dec 17, 2021 at 10:30AM

Key Points

  • Home Depot's business benefits as home prices increase.
  • The retailer is increasing sales at double its rate of the past decade.
  • It expects robust revenue growth to continue in 2022.

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This home improvement retailer has been thriving since the onset of the pandemic.

Investing in dividend stocks can be an excellent way for folks to generate income in retirement. It can also be a great option for people still building a nest egg. Owning shares of a dividend-paying stock gives you regular payments that you can choose to reinvest if you are still saving for retirement or spending on necessities in your later years. 

One stock to consider right now is Home Depot (HD 3.42%), which has been a surprising winner during the pandemic. Few could have imagined the ferocity of demand for home improvement products and services. With folks spending a lot more time learning, working, and entertaining themselves at home, they realized their abodes could use upgrades to match. As a result, Home Depot was a big winner in 2021, and here's why it is my top dividend pick for 2022. 

Two people looking at lumber.

Image source: Getty Images.

Customers spend more at Home Depot as home values rise

Home Depot's management has often said that one of the primary determinants of how much folks are willing to spend on their homes are home prices. That's understandable: People who see the price of their home rising view spending on it as an investment rather than a splurge. 

And, boy, are the prices of homes rising. According to the Federal Reserve Bank of St. Louis, the cost of a home is increasing at the fastest rate in the last 40 years. That could fuel continued spending at Home Depot for 2022. 

In the nine months ended Oct. 31, Home Depot's sales increased 15.6% over the same time last year. That's on top of the 19.9% increase in sales in 2020. To put that performance in perspective, over the previous decade Home Depot has increased revenue at a compound annual rate of 6.9%.

At an investor conference on Dec. 2, Chief Financial Officer Richard McPhail elaborated on why he thinks sales growth could continue for Home Depot:

By the end of this year, we're probably going to see a two-year home-price-appreciation number somewhere around 25%. That's unlike what we've seen in modern history. And so intuitively, we believe that that is at least partly what has driven this willingness to invest .... There's also the means to invest .... depending on how you measure it, $2 trillion in excess savings sitting in bank accounts."

And Home Depot is ready to fulfill that demand for home improvement. The company has done an excellent job throughout the pandemic of using its scale and buying power to ensure it has the products customers want amid supply-chain disruptions worldwide. At the end of Q3, Home Depot's had $20.5 billion of inventory, up from $16.1 billion at the same time last year. That could come especially in handy if competitors have difficulty securing their inventory. Home Depot could gain customers who come over from elsewhere because they couldn't find what was needed.

Home Depot is my top dividend stock in 2022

Of course, dividends are paid out of earnings, and Home Depot gets high marks in that regard as well. As of Oct. 31, it had increased net profits by 31% from last year's same nine-month period.

That has allowed Home Depot to pay $5.26 billion in cash dividends over that time frame, up from $4.8 billion a year earlier. As of this writing, Home Depot is sporting a dividend yield of 1.65%. If it keeps reporting solid sales and profits as it has been doing since the pandemic's onset, it can likely raise dividend payouts even higher. That's why Home Depot is my top dividend stock to buy in 2022. 

Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool owns and recommends Home Depot. The Motley Fool has a disclosure policy.

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