Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low it's not even worth the paper your dividend check is printed on. Therefore, finding a solid dividend takes the right balance of growth, value, and sustainability.
Today, and one day each week for the rest of the year, we're going to take a look at one dividend-paying company that you can put in your portfolio for the long term without much concern. This isn't to say that these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock.
This week we're going to take a look at home improvement giant Home Depot
I can just hear the moaning on the other end of the computer already: "But Home Depot is hovering around a 52-week high!" I fully understand those concerns and the fact that Home Depot definitely isn't as cheap as it was when the housing bubble burst in 2008, but you'd be foolish to assume that Home Depot's better days are behind it.
Home Depot and its rival Lowe's
For Home Depot, it isn't just enough to remain in this sweet spot; it's about continuing to grow its market share. Based on its third-quarter results released in November, it was able to take market share from rival Lowe's and upped its earnings forecast for the third time in six months. Better utilization of technology in its stores and of its staff coupled with more effective price cuts drove growth faster at Home Depot than Lowe's.
This growth didn't just add market share to Home Depot's already dominant position -- it also allowed the company to boost its dividend by a clean 16% to $0.29 quarterly. Although Home Depot doesn't raise its dividend with any regularity, it has still grown its dividend annually by 19.2% over the past decade. Check out how rapidly Home Depot's annual payout has grown despite the worst housing downturn in 70 years:
Source: Dividata. *Implied 2012 dividend.
Home Depot's rivals also signal that strength in remodels is expected to continue. Lumber Liquidators
Another reason to like Home Depot is that it no longer has to worry about Sears Holdings
Think about Home Depot this way: If the company has been able to raise its earnings forecast three times in six months and grow its dividend by an average of 19.2% over the past decade, imagine how strong it will be when housing prices actually do begin to recover. Stew on that for a while and consider adding Amercia's home-improvement superstore to your watchlist.
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Fool contributor Sean Williams has no material interest in any of the companies mentioned in this article. He vaguely knows what a hammer looks like. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Lumber Liquidators. Motley Fool newsletter services have recommended buying shares of The Home Depot, Lowe's and Lumber Liquidators, as well as writing covered calls in Lowe's. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that always loves a free payout.