Need Rising Passive Revenue? Purchase This Monster Dividend Development Inventory

Shopping for well-run companies working in large industries is a components for fulfillment as a dividend progress investor. That is as a result of enormous addressable markets enable for high quality firms to seek out methods to proceed rising their gross sales and earnings, which might additionally lead dividends upward over time.

Having not too long ago boosted its quarterly dividend per share by 10% to $2.09, the main residence enchancment retailer often known as House Depot (HD -1.94%) is a no brainer decide for traders searching for rising passive earnings. Listed below are three explanation why.

1. Aggressive benefits equal excessive revenue margins

Given the $157 billion in gross sales that analysts count on for the present fiscal yr, House Depot instructions round 16% of the $1 trillion North American residence enchancment retail market. For context, that’s considerably greater than Lowe’s (LOW -5.56%) roughly 10% market share.

House Depot’s superior dimension over Lowe’s is the byproduct of its better enchantment to skilled contractors. For one, the previous’s model choices are perceived to be superior to the latter’s. House Depot additionally holds a marginal benefit in bulk pricing over Lowe’s. For this reason the previous’s whole professional gross sales combine is round half of its enterprise, whereas the latter’s whole professional gross sales combine is a couple of quarter of its enterprise.

HD Profit Margin information by YCharts

Since professionals spend more heavily and frequently than do-it-yourselfers, it is no shock that House Depot enjoys a lot better profit margins than Lowe’s.

House Depot recorded $35.8 billion in gross sales through the fourth quarter ended Jan. 29., which was a 0.3% year-over-year progress charge. What was behind these outcomes?

The corporate’s comparable gross sales decreased 0.3% over the year-ago interval for the fourth quarter. House Depot’s common ticket edged 5.8% increased yr over yr to $90.05 within the quarter, however the acquire was principally offset by a 6% drop in buyer transactions over the year-ago interval as spending from do-it-yourselfers cooled. Lastly, a slight improve in House Depot’s retailer depend to 2,322 retail shops all through the U.S., Puerto Rico, Canada, and Mexico led to a bump in gross sales through the quarter.

The house enchancment retailer reported $3.30 in diluted earnings per share (EPS) for the fourth quarter, which equates to a 2.8% year-over-year progress charge. House Depot’s internet margin remained steady at 9.4% within the quarter. Together with a 2.4% discount in its excellent share depend, that explains how the corporate’s diluted EPS grew at a quicker clip than gross sales through the quarter.

Picture supply: Getty Photos.

2. Robust dividend progress may persist

House Depot’s 2.8% dividend yield is much above the S&P 500 index’s 1.7% yield. As if that weren’t sufficient, the corporate boosted its dividend by a double-digit charge the final 13 dividend raises. And this streak appears poised to proceed for the foreseeable future.

That is as a result of House Depot’s dividend payout ratio is ready to clock in under 53% for the present fiscal yr. This could go away sufficient capital for the corporate to put money into future progress alternatives and repay its debt.

3. The inventory is a good worth

House Depot appears to be a strong worth for dividend progress traders. This will appear paradoxical contemplating that the inventory’s ahead price-to-earnings (P/E) ratio of 17.5 is increased than the house enchancment retail business common ahead P/E ratio of 16.8. However factoring in House Depot’s unmatched dimension and scale, that is arguably an affordable premium to pay for the inventory.