The fourth quarter topped off a phenomenal year for home improvement giant Home Depot (HD -0.19%), with high growth all around as well as a significant dividend increase. The past two years have been out of character for the U.S. retailer, and going forward, it's anticipating slowing growth. But that shouldn't bother investors because the solid-value stock still has a lot to offer.
It was great while it lasted
Home Depot's customers have been on a shopping spree for most of the pandemic. Lockdowns and social distancing orders were a tailwind for the company as people, with limited spending outlets and activities, focused on home remodeling. This has already slowed down as the world has mostly reopened and people are out and spending in other areas.
Still, Home Depot was able to tack on another 10.7% year-over-year sales increase in the fourth quarter on top of 25% last year. Comparable sales, or sales from existing stores, increased 8.1% in total and 7.6% in the U.S. while net income rose from $2.9 billion last year to $3.4 billion this year.
Home Depot also raised its dividend 15% -- and that's after raising it 10% for the past two years. The quarterly dividend of $1.90 brings its yield up to 1.9% at the current price, far above the S&P 500 average of 1.39%.
Expect a slowdown but also further growth
Management said to expect sales and comps to be "slightly positive" in 2022. It's guiding for margins to stay flat with 2021 levels, which were lower than 2020 levels due to higher costs and supply-chain investment. It also expects net income to post low growth. Wall Street is expecting $153.6 billion in 2022 revenue, or a 1.6% increase from 2021, and $16.25 in earnings per share (EPS) for 2022, ahead of $15.53 in 2021.
The company posted record sales in 2021 and expects to outdo that in 2022, and management said its goal is to grow to $200 million in sales over time. It sees a $900 billion market opportunity in North America, and between this opportunity and the company's efficient business practices, that looks highly acheivable. The housing market is still hot, and it's expected to keep surging in 2022, supporting a bigger market for Home Depot.
Several pressures exist going into 2022 in the form of continued supply-chain logjams and inflation, and Home Depot is responding with price raises where necessary. It's also heavily investing in its own supply distribution network and omnichannel shopping features. It renovated several hundred stores in 2021 with its GSR (or "get stores right") initiative, resulting in record sales per square foot of $605. It plans to renovate several hundred more this year, which could apply short-term pressure for long-term efficiency. Its longer-term goal is to post "best-in-class" operating-profit dollar growth and return on invested capital.
Why Home Depot is a solid long-term pick
Investors weren't thrilled with the earnings outlook and lower margins, and Home Depot stock fell nearly 9% after the fourth-quarter results were released. As for outlook, it's not a surprising forecast, and any growth on top of two past years is a positive sign for where the company is headed.
Home Depot stock has gained 117% over the past five years, outdoing the S&P 500. It's a solid value stock with a clear market opportunity, efficient capital usage, and a strong dividend. Slowing growth shouldn't scare investors, and now is an excellent time for new investors to buy shares on the dip.