Home Depot Faces Weak Results and Modest Dividend Increase

Home Depot reported disappointing fiscal 2024 results, guiding for a weak fiscal 2025 with a 2.2% dividend raise, marking the smallest increase since 2010. Investors may need to reconsider their forecasts for Home Depot amidst ongoing challenges.

Date: 02-03-2025

AI Rating: 5

Home Depot's recent performance raises concerns. The stock experienced a 2.8% increase even after posting weak fiscal 2024 results and disappointing fiscal 2025 guidance. The company forecasts total sales growth of just 2.8% for 2025, with a comparable sales growth of only 1%. This reflects overall sluggish trends in the home improvement sector.

**Earnings Per Share (EPS) Highlighted**: Home Depot's diluted EPS is expected to fall by 3% this upcoming fiscal year, which poses a significant concern for investors. In fiscal 2024, the company earned $14.91 in diluted EPS, down from $15.11 in fiscal 2023 and $15.53 in fiscal 2021. The anticipated decrease in EPS suggests ongoing stagnation and lack of growth.

**Dividend Growth**: Investors have become accustomed to strong dividend increases from Home Depot in past years. However, the latest dividend raise of only 2.2% is alarmingly low and reflects the company's current struggles. For instance, between 2020 and 2024, Home Depot had previously raised its dividends significantly (7.7% in 2024 compared to 15.2% in 2022), and this slowdown in contribution could be a red flag for dividend-seeking investors.

**Payout Ratio Considerations**: The company's payout ratio has risen to 60%, which is higher than its historical average over the past 15 years. This increase might indicate the company is reaching its limits in terms of dividend sustainability, especially as earnings growth has stagnated.

**Long-Term Investments and Outlook**: Despite these challenges, Home Depot continues to invest in its future, including an $18.25 billion acquisition and opening new stores. These strategic moves may position the company favorably once broader market conditions improve.

In conclusion, while Home Depot's recent results indicate a period of stagnation, the company's long-term investments suggest that it could rebound. Investors should adopt a cautious, long-term approach, balancing potential growth against the current weakness highlighted in the report.

Stocks: HD