Home Depot, a household name in the world of retail, has cemented its position as a go-to destination for DIY enthusiasts, professional contractors, and homeowners seeking assistance with improvement projects. With over 2,300 stores across North America, the company has grown exponentially over the past 15 years, seeing its market capitalization surge from $50 billion to over $380 billion. As a blue-chip stalwart and a component of both the S&P 500 and the Dow Jones Industrial Average, Home Depot is often viewed as a stable and reliable investment. Despite recent challenges, the company remains a strong candidate for passive income investors looking to construct a resilient portfolio for 2025 and beyond.
Home Depot’s latest financial guidance, shared in November 2023, paints a picture of a company navigating a multiyear downturn. The retailer expects a 2.5% decline in comparable store sales for the full fiscal year, alongside a 1% drop in adjusted diluted earnings per share (EPS). These figures, while underwhelming, are particularly concerning given the relatively favorable comparison points from previous years. In fiscal 2023, comparable sales fell by 3.5%, and diluted EPS plummeted by 9.5%. Despite these lackluster results, Home Depot’s stock has shown remarkable resilience, rising 11% over the past three years and 57% over the past five. However, this performance lags slightly behind the broader S&P 500, as investors weigh the company’s current struggles against its long-term potential.
The macroeconomic landscape has emerged as a significant headwind for Home Depot. Soaring interest rates have made financing home improvement projects more expensive, while elevated mortgage rates have curtailed home purchases and sales. The U.S. housing market is currently at a crossroads, with home prices near a 10-year high and existing home sales nearing a 10-year low. Additionally, U.S. credit card debt has ballooned to over $1.2 trillion, a 50% increase from pre-pandemic levels. These factors have created a perfect storm, making it difficult for many potential buyers and homeowners to invest in their properties. Home Depot, which thrives when consumers are actively engaged in home improvement projects, is feeling the squeeze.
Yet, despite these challenges, Home Depot has demonstrated remarkable fortitude. The company’s ability to maintain relatively stable performance in the face of such adversity speaks to the strength of its brand and customer loyalty. While some may view the current downturn as a sign of weakness, others see it as a testament to Home Depot’s resilience. The past two years have effectively served as a stress test for the retailer, and its ability to weather the storm is a promising indicator for long-term investors.
One of Home Depot’s most compelling attractions for income-focused investors is its dividend. Over the past 15 years, the company has consistently raised its quarterly dividend, increasing it from $0.25 per share in 2011 to $2.25 per share in 2024. This track record of steady and significant dividend growth, combined with a current yield of 2.3%, makes Home Depot a standout choice for those seeking reliable passive income. Investors can reasonably expect another dividend raise in early 2025, as the company has historically announced increases in February or March.
Home Depot’s valuation also warrants consideration. While its price-to-earnings (P/E) ratio of 26.2 and forward P/E of 24.5 are slightly above the 10-year median of 22.9, this premium is understandable given the strength of the company’s balance sheet and its long-term growth prospects. The recent acquisition of SRS Distribution for $18.25 billion, completed in June 2024, further diversifies Home Depot’s exposure to the contractor market and positions the company for future expansion. Although the full benefits of this acquisition may take time to materialize, it underscores Home Depot’s commitment to strategic growth and its ability to act decisively even in challenging economic conditions.
Looking ahead, Home Depot is poised to emerge from the current downturn in a position of strength. Unlike companies in more cyclical industries, its performance has historically followed a steady upward trajectory, punctuated by occasional plateaus rather than sharp declines. With fiscal 2025 marking the first full year since the integration of SRS Distribution, Home Depot could experience a modest uptick in sales and earnings, even if interest rates remain elevated. For investors with a long-term horizon, Home Depot’s combination of a growing dividend, reasonable valuation, and strategic initiatives makes it an excellent choice to anchor a portfolio. While near-term results may remain under pressure, the company’s resilience and adaptability suggest a bright future once the broader economic climate begins to improve.
