Home Depot (HD 0.94%) stock fell slightly in morning trading on Tuesday as the company released its fourth-quarter and fiscal 2021 earnings. The Atlanta-based home-improvement retailer beat revenue and earnings estimates, but management's vague sales guidance for 2022 appeared to disappoint investors.
These slowing sales could lead to questions about Home Depot. As the state of the business could more closely resemble pre-pandemic conditions, investors may wonder what to do regarding this retail stock.
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The sales and earnings results
Home Depot's sales for the fourth quarter of 2021 (ending Jan. 30, 2022) came in at $35.7 billion, an 11% increase versus the year-ago quarter and ahead of the $34.9 billion analysts had estimated. This amounted to comparable sales rising by 8%. (Corporate Event Data provided by Wall Street Horizon.)
That added revenue took net earnings 17% higher over the same period to $3.4 billion, or $3.21 per diluted share. Limiting operating expense growth to 4% more than offset the 28% surge in income tax expenses. This sent profits above the $3.17 per share that analysts had predicted.
For fiscal 2021, the $151 billion in sales beat the analyst forecast of $150 billion. The company's profits surged 14% from 2020 levels and included an 11% surge in comparable sales. During that period, earnings also rose 30% to $16.4 billion, or $15.53 per diluted share, just ahead of the consensus forecast of $15.47 per share.
Moreover, the company raised the dividend by 15%. This now means shareholders receive $7.60 per share annually, a dividend yield of 2.2% that comes in well above the S&P 500 average of 1.4%.
Where this leaves Home Depot
Despite the revenue and earnings beats, investors did not appear pleased as fiscal 2022 guidance called for "slightly positive" sales growth and diluted earnings per share increases in the "low single digits." This may not exceed analyst expectations of 2.5% sales growth and the earnings increase of just under 5%. Hence, its performance may resemble pre-pandemic conditions in 2019, when sales grew by 2% year over year.
Despite the anticipated slowdown, other performance metrics appear slightly above average. The stock price rose by more than 15% over the last year, even when factoring in a drop of just under 25% since the end of last year. This beat the S&P 500's total return, which came in at about 12% over the same period.
The stock's P/E ratio stands at around 22, a level close to historical averages. Still, it comes in slightly higher than archrival Lowe's (LOW -0.04%), which trades at about 19 times earnings. While one might argue that Home Depot is a better business than Lowe's, Home Depot also commands a higher valuation.
Nonetheless, the dividend continues to show strength. The 15% increase in the payout was higher than the 10% dividend hikes in each of the past two years. Also, with the company's free cash flow of around $14 billion in fiscal 2021, the $7 billion cost for cash dividends during the same period makes the payout affordable. Additionally, the 15% dividend increase far exceeds the inflation rate, which currently tracks at about 7% This is notable for income investors given the increase in prices in recent months.
Moreover, investors may not appreciate the dividend's long-term performance. Although it has not risen every year, Home Depot has offered a consistent quarterly payout since dividends began in June 1987. At the original, split-adjusted annual payout of $0.0018 per share, the payout has risen more than 4,300-fold since inception!
Should you consider Home Depot stock?
Despite a post-earnings sell-off, Home Depot stock remains in a position to deliver steady returns. Indeed, the company's days as a growth stock ended long ago, and its day-to-day performance probably will not excite investors.
Nonetheless, Home Depot affirms its status as a "keep you rich" stock. Between its stock price movements and the rising dividend, it can serve conservative investors well.
