The best companies to invest in are those that are dedicated to you, the shareholder, and those that are focused on returning the maximum capital possible. Home Depot (NYSE:HD) is one of the most active companies in trying to do just this, and its financials make it possible through ample free cash flow generation. This may be just the kind of company you need in your portfolio to provide security in an uncertain market.
Overview of the orange one
Home Depot is the largest home improvement specialty retailer in the world. It currently operates 2,258 locations in the United States, Puerto Rico, the U.S. Virgin Islands, Canada, Mexico, and Guam. The company was founded in 1978, went public in 1984, and has been a part of the Dow Jones Industrial Average since 1999.
A dividend on the rise
One of the two best ways to return cash to shareholders is through dividend payments. Home Depot currently pays out an annual dividend of $1.56, giving it a yield of roughly 2.08%. It has been paying dividends uninterrupted and without reduction since 1987, resulting in 107 consecutive quarterly payments. The dividend has been raised 11 times since 2000. This number would likely be higher had the recession not occurred, although this does prove that Home Depot is able to return capital to its investors regardless of trouble in the economy.
Aside from yield, analysts always like to look at the safety of dividends, and it is more than reasonable to assume that Home Depot's is safe from reduction or elimination. As you can see in the chart below, the company has increased yearly payments each year since 2009, and I believe this trend will continue over the next several years due to increased free cash flow generation.
Bring it back, bring it back
The other great way to return cash to shareholders is through share repurchase programs. Repurchasing shares reduces the amount of shares outstanding, which increases earnings per share and makes the remaining shares more valuable. In February, Home Depot announced that it would be repurchasing $17 billion worth of its shares by the conclusion of fiscal 2015. This actually replaced its previous ongoing program, because there was more capital available.
In the span between 2002 and Feb. 3, 2013, when this new program was announced, Home Depot had returned an incredible $37.5 billion of cash to its shareholders through share repurchases. This means the company had repurchased roughly 1 billion shares in a little over 10 years, almost unheard of in today's market. If Home Depot maintains its performance, I would not be surprised if the current repurchase program is replaced by an even larger one at the conclusion of fiscal 2013.
How do the others stack up?
Lowe's (NYSE:LOW) is the largest competitor to Home Depot, with 1,758 home improvement stores in the United States, Canada, and Mexico. Let's see how well the company treats its shareholders compared to Home Depot.
|Dividend raises since 2000||11||13|
|Repurchases in most recent quarter||$2.15 billion||$1 billion|
|Current repurchase program||$17 billion||$5 billion|
Lowe's has had a great run in 2013 and has shown a strong dedication to its shareholders. Over the next two years, it plans to repurchase $5 billion of its shares. This is much lower than Home Depot's current plan, but still very respectable in today's market. Lowe's yield is currently much lower, but it has raised its dividend for a very impressive 51 consecutive years, and I do not doubt that this streak will continue. Overall, I believe both companies can provide good returns to their shareholders through dividends and repurchases, but I think Home Depot has the edge at this time. When you factor in earnings growth and other key financial statistics, Home Depot only gets stronger.
The Foolish bottom line
Home Depot's dedication to shareholders is admirable and should be a platform for other companies to imitate. This also makes the company one of the most desired investments in an uncertain market. If your portfolio needs some protection, dividend income, or a great value play, Home Depot may be the company for you.
Fool contributor Joseph Solitro has no position in any stocks mentioned. The Motley Fool recommends Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.