A Home Depot (NYSE:HD) shopper knows all about fractions. From wood plank measurements to drill bits, home improvement is an exact science. Apparently, Home Depot wants its shareholders to start thinking the same way.
Yesterday afternoon, the retailer announced that it was hiking its quarterly dividend by 21% to $0.085 a share. Giving its shareholders a larger payout is commendable. As long as it won't hurt the company's balance sheet or get in the way of the expansion process, kudos. Now that the folks behind the orange aprons have matured as a company -- sales and earnings are expected to grow by 10% to 14% this year -- it makes sense to attract the income investor over the disillusioned hypergrowth one. Trying to compete with the softer image of Lowe's (NYSE:LOW) or expanding its service offerings aren't capital-intensive pursuits, so the meatier yield works.
But what's the deal with that halfpenny? Home Depot isn't the only one to do this. Companies with small dividend amounts play the fractions game. And, yes, in case you're wondering, if you do happen to have an odd number of shares, that halfpenny will get rounded up whole. But why slice Lincoln coppers, even in theory?
It's like that petulant five-year-old kid who insists she's actually five and a half. Sure, sweetie. If you say so.
Some companies do it to give themselves room to keep a string of dividend hikes going. If the future isn't exactly booming, a fraction higher will still be a baby step in the promised direction. This approach is more like the petulant parent trying to punish the petulant kid.
"When I count to three, you're going to be grounded! I mean it this time. One. Two. Two and a half. Two and three-quarters. . ."
That isn't Home Depot this time, as it could have simply gone from seven pennies to eight. It's not alone. Just looking over some companies going ex-dividend today you see plenty of fractional culprits: Abercrombie & Fitch (NYSE:ANF) is paying $0.125 this quarter. I thought the chain wasn't afraid of the teens? Applied Biosystems (NYSE:ABI) isn't just splicing genes; it will be paying out a dividend of $0.0425 a share.
Naturally, entities like REITs and closed-end income funds are excused from this rant because they are required to pay out as much as they take in. While I trust Mathew Emmert isn't overly concerned with fractional pennies when he screens for promising Motley Fool Income Investor stock picks, I'm sorry it bugs me. Then again, drill bits and wood planks bug me, too.
Have you checked out our Home Center and feel like remodeling your home yourself? Does Home Depot's fractional payout inspire you to spend more at the home-improvement superstore ? All this and more -- in the Building/Maintaining a Home discussion board. Only on Fool.com.
Longtime Fool contributor Rick Munarriz will accept fractions in shoe and hat sizes, but he's got his limits. He owns no shares of companies mentioned in this story.
