Home Depot's (HD 0.94%) days of rapid growth are likely behind it. In recent years, it has added few locations as it has saturated its markets in the U.S. and Canada, and its previous plans to expand outside of North America did not work out.
The company's increasing revenue and rising payouts could still serve investors as a place to store wealth while deriving modest income. But the real lesson may come from its ability to derive massive returns over the years -- and how current investors can perhaps learn from its example as they size up younger companies today.
The growth of Home Depot
Investors who see Home Depot as a "keep you rich" stock may be surprised to see the returns it has made for its longtime investors. Its initial public offering (IPO) was in September 1981, only two years after opening its first two locations around Atlanta, Georgia.
Soon after, regional expansion gave way to a nationwide footprint and eventually moves into Canada and Mexico. Store counts, revenue, and stock prices grew throughout that time. Between the company's growth and numerous stock splits, Home Depot shares have experienced success that almost no other enterprise has matched. As a result, a $1,000 investment on its IPO day is worth nearly $16 million today.
Incredibly, that figure does not include dividends. Dividend payments began in 1987 at a split-adjusted $0.00176 per share annually. That means today's dividend of $8.36 per share has risen by 4,750-fold. When including all payments, the total return comes to just under $26 million.
Can investors find the next Home Depot?
Investors may learn lessons that could help them find the next retail stock that can derive massive returns. Admittedly, they are unlikely to match Home Depot's cumulative return, even if they choose wisely.
Home Depot's archrival, Lowe's Companies, began trading in 1961 but did not come close to matching Home Depot's returns. Also, $1,000 invested in Walmart's 1972 IPO would yield a total return of around $3.6 million, including dividend payments, and Amazon would have turned a similar investment into $1.5 million since its 1997 IPO.
Far worse, some investors might have chosen one-time competitors like Kmart or Bed Bath & Beyond. These formerly prosperous companies stumbled badly after failing to adapt to changing marketplaces.
Investors should look for retailers moving from a local footprint to a regional, national, or international presence. Ultimately, one can benefit from massive returns in a merchant backed by a solid business model, consistent revenue and income increases, and the avoidance of significant mistakes.
Making sense of Home Depot's rise
Home Depot has delivered eye-popping returns to long-term shareholders in its 42 years of existence. So massive was its growth path that it will be hard to any other company to repeat it over a similar time frame.
However, identifying retail growth potential early can still bring massive returns. A retailer that can manage stores well, grow revenue consistently, and capitalize on potential expansion opportunities can bring huge returns to investors.
