Investor Bill Miller seems befuddled. In his July 2010 commentary, he wonders why investors keep purchasing 10-year Treasuries yielding about 3%, when companies like ExxonMobil offer much higher potential returns.

His formula for Exxon is straightforward: "A sum of the dividend yield, growth rate and share shrink could represent an attractive annual return even if the valuation stays the same, and the valuation is among the lowest the company has traded at in years." When you add up the components, Exxon could offer 16.4% returns per year in a low-return environment.

I'm no less baffled than Miller by investors' preference for bonds, but I do think he's on to something. To see whether more Miller-like opportunities like Exxon were out there, I looked for companies with:

  • A dividend yield greater than the 3% 10-year Treasury yield.
  • A five-year track record of dividend growth.
  • A history of repurchasing shares.
  • A price-to-earnings ratio less than 25.

Among home-improvement retailers, Home Depot (NYSE: HD) fits the bill and stacked up well against some competitors.



5-Year Dividend Growth

Share Shrink


Home Depot





Lowe's (NYSE: LOW)





Central Garden & Pet Co. (Nasdaq: CENT)





Source: Capital IQ, a division of Standard & Poor's.

From the table above, Home Depot fits Miller's criteria perfectly. It pays a 3.3% dividend that has been growing 20.1%, on average, for the past five years. The company also trades around 17 times earnings and produces plenty of cash flow to repurchase shares. Lowe's is close to meeting Miller's criteria, but its dividend doesn't quite match up yet, though its payout has been growing faster. Central Garden & Pet doesn't pay a dividend just yet.

Foolish bottom line
Would Bill Miller consider investing in Home Depot? It meets all the criteria above, and it could offer a nice return over time -- although it will be hard for the company to maintain such a dividend growth rate. In today's low-return environment, that's pretty attractive. I don't know why the market is offering up this opportunity, but as long as it is, Home Depot could be worth pursuing further.

Million Dollar Portfolio associate advisor David Meier does not own shares of any of the companies mentioned. Home Depot and Lowe's are Motley Fool Inside Value selections. Motley Fool Options has recommended writing puts on Lowe's. The Motley Fool owns shares of ExxonMobil. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy never goes out of style.