Investing in dividend stocks can be an excellent way to build wealth for retirement. It can also help supplement Social Security income for those already retired.
Dividend stocks do not always follow the same schedule and process for paying dividends. For instance, some might pay semi-annual dividends and others quarterly. And several other characteristics can differentiate one dividend stock from another.
Therefore, it can be informative to decipher particular dividend stocks and identify some key attributes to determine if they meet the criteria you are seeking. Let's look at Home Depot (HD -0.31%) and evaluate if it's an excellent dividend stock to buy in April.
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Home Depot has a history of increasing its dividend
Interestingly, Home Depot first declared a dividend on May 27, 1987. The amount was so small, it's hardly worth noting the figure here. The more important fact to consider is that it has now been paying a dividend for more than 30 years.
The company has gone through several trials and tribulations between then and now, and the fact that it has sustained the dividend payout throughout that time highlights its prudent cash management. It can also offer income investors confidence that they will receive a dividend payout over the next several decades.
Additional comfort can come from Home Depot's robust earnings growth. From 2013 to 2022, the company has grown earnings per share at a compound annual rate of 20.2%. Of course, a company cannot sustain a dividend without earnings. That would be like a household spending money without income; eventually, savings would evaporate, and borrowing capacity would be exhausted. Similarly, a business needs earnings from which it can pay dividends.
The dividend payout ratio measures the percentage of earnings a company pays in dividends. Home Depot's dividend payout ratio was 42.5% as of this January. That means its earnings can fall by half, and it could theoretically still pay its dividend for several years.
That annual dividend totals $6.60 per share for Home Depot investors in 2022. The figure has risen substantially from 2013 when it was $1.16. Given the healthy earnings growth and sustainable dividend payout ratio, income investors who buy Home Depot's stock today can reasonably expect their dividend per share to rise over the years.
Is Home Depot a dividend stock to buy?
As of this writing, Home Depot's stock sells for about $308 per share, down about 25% year to date. The company will have a challenging year in 2022 as it battles supply-chain constraints, labor shortages, inflation, and slowing growth. Still, it has proved it can grow revenue and earnings consistently and return capital to shareholders.
Most importantly for income investors, it has demonstrated decades of dividend payments and increased its payout per share nearly sixfold in the last decade. Given the long history of success, you can reasonably expect Home Depot to handle current challenges adeptly. For those reasons, it could very well be an excellent dividend stock to buy in April.
