Sales surged for Home Depot (HD 0.86%) due to the outbreak of COVID-19. Suddenly, folks were working, learning, and entertaining themselves at home most of the time. Many homes were not equipped for this, so it spurred spending on improvements, renovations, and additions.
Of course, the boom was not expected to last indefinitely, and now that economies are reopening and people have more options for what to do with their time and money, spending growth on home improvement is coming to an end.
Still, the slowdown in growth should not cause investors to overlook this dividend stock.
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Home Depot expects sales growth to end in 2022
Since the outbreak two years ago, Home Depot's sales have grown by $40 billion. In its fiscal year 2021, which ended on Jan. 30, sales totaled $151 billion or 14% higher than in the year before. Folks spending more time at home found a lot of projects to complete around the house.
Painting rooms, adding a garden, and creating a home office were popular activities at the pandemic's onset. Revenue grew by a double-digit percentage for Home Depot in two consecutive years, when it had not done so once in the eight years before the outbreak.
Management expects the above-average growth to end in the fiscal 2022. It has guided investors to look for revenue to remain flat for the year. When you consider that inflation is raising prices on many of the items that Home Depot sells, it seems as though consumers are expected to buy fewer items than they did the year before.
That's understandable. There are only so many rooms you can paint and so much space in your garden. However, the slowdown in sales growth is no reason for Home Depot shareholders to panic.
Home Depot's dividend is not in danger
HD EPS Diluted (TTM) data by YCharts
Home Depot reported earnings per share (EPS) of $15.53 in fiscal 2021, and management expects that to rise even more in 2022. To put that into perspective, it's more than five times higher than the EPS it reported in 2013.
Earnings are critical for many reasons, but especially for dividends. Without sufficient earnings to support a dividend payment, the company would run out of savings and exhaust borrowing capacity. Home Depot's robust earnings mean it can sustainably keep paying its healthy and growing dividend.
Indeed, looking at Home Depot's dividend payout ratio, which measures the percentage of earnings paid out in dividends, reveals that the company has room to expand its dividend payment over the next few years.
HD Payout Ratio data by YCharts
Income investors attracted to Home Depot because of the dividend need not worry about slowing sales growth. Even with flat revenue expected in 2022, Home Depot is growing earnings per share. Moreover, it's paying less than 50% of earnings in dividends, highlighting plenty of cushion to sustain the payment in the event of an earnings decrease.
