It’s
been a super busy hurricane season, and it’s not over yet ...
Three
CAT 4 hurricanes have hit the U.S.
Harvey,
Irma, and Maria made landfall in Texas, Florida, and Puerto Rico, respectively.
And
it was the first time in recorded history when two 150-mph hurricanes were in
the Atlantic at the same time.
I’ve
lived in Florida for decades. So I know what it takes to prepare for a monster
storm that’s beating a path to your door. And when Hurricane Irma looked as
though it was going for us, I didn’t waste any time preparing for the worse.
Plywood, screws,
cordless drills, and generators flying off the shelves!
I
needed a heavy-duty extension cord. So I went to Home Depot (HD). Finding one
was a piece of cake. Paying for it was a different story …
The
registers were fully staffed, and all the self-service machines were working.
Even so, the lines at each were at least 25 bodies deep. Plywood, screws,
cordless drills, and generators were flying off the shelves.
I
was stuck at the far end of a checkout line. There was a fellow ahead of me who
had a generator, a half-dozen pieces of plywood, and several boxes of screws on
his cart; he looked frustrated.
I
took a deep breath and smiled. Not out of arrogance because this guy had a heap
of hard work ahead for the next few days, and I’d been through this several
times before and was for the most part all set.
No.
I
was thinking about what a great business this was. A true American success
story.
Two guys and a dream
Home
Depot started out in 1978 with two guys who had a dream to create a superstore
that would offer a huge variety of merchandise at great prices and with a
highly trained staff.
Image source: Home Depot
Now
Home Depot is the world’s largest home improvement retailer, a Dow component
with more than 2,200 stores in three countries filled with stuff every
homeowner needs.
And
what made standing in that line even better was knowing that a small piece of
that man’s $1,000+ purchase would land in the pockets of individual investors,
just like you and me.
Plus
after the hurricane passes, he and thousands of others will be back. They’ll
need things they can’t buy at Wal-Mart and Target, such as: face masks,
sledgehammers, crowbars, plastic buckets, wheelbarrows, flooring, shovels, and
sheetrock.
Get paid to wait
As
investors, we all want to see our picks go up in value. But what I love about
stocks like HD is that they pay you to wait. In fact, Home Depot has been consistently
paying dividends since 2000.
Currently
that dividend is $3.56 yielding 2.2%, which is slightly higher than the DIA’s
2.1% and the SPY’s 1.9%.
You
can see in the chart below the share growth over the past 8 years. During the
recession Home Depot cut back by discontinuing new store construction, closing
15 U.S. big box stores, and canceling 50 future store openings. Yet the company
endured.
Since
then shares have soared, and the trend is clearly upward.
Chart source: TD Ameritrade
Rebuilding
from the deluge of recent natural disasters will certainly boost sales and
profits. Longer term, the demand for housing is on the rise according to the
National Association of Home Builders.
Moreover,
according to Zacks, Home Depot has some of the strongest comparable
store sales in the entire industry. Last quarter, sales and earnings reached
historic highs. At the same time, online sales grew 23% and represented more
than 6% of total sales.
Stock buybacks are on the rise too, which is a good
thing for shareholders ...
Home Depot bought back 17.3 million shares for $2.6
billion last quarter. That took year-to-date buybacks to $3.9 billion. Management
raised its fiscal 2017 buyback target from $5 billion to $7 billion.
Shares
continue to hit new highs and are up about 24% so far this year.
Is this the time to
buy HD?
I’ve
owned HD since 2007. And in my opinion it’s a solid company with a track record
of consistent growth and competitive dividends and worth considering for your
portfolio.
So if you do decide to pick up some HD shares, the next time you’re stuck at Home
Depot behind a line of shoppers loading up on home supplies, don’t be impatient
… SMILE … you’re getting paid to wait.
