The Trouble with Home Depot - Buying More for the Dividend?

Written by The Dividend Guy on May 26, 2006

Man oh man, I received a lot of comments (for my blog) for my post about my shopping experience at Home Depot. Most of the comments reiterated my frustration. I am starting to think that I am on to something here. To further solidify my thoughts, there is now the issue of executive compensation and a lack of concern for shareholders, as covered in this article.

That being said, I am having trouble with the rationalization to sell my Home Depot. It even looks like a buy from a pure numbers perspective. Here are some of the facts:

1. The revenue trend line is increasing steadily. Most recent year over year numbers look like this: 2005: $73,094.0 2006: $81,511.0. Go way back to 1997’s $19,535.5 and you have a pretty strong growth rate.
2. The EPS trend line is also increasing steadily. In 2005 EPS was $2.26 and in 2006 it was $2.72. Go back to 1997 ($0.43) and again you can see some pretty consistent growth.
3. The average yearly P/E ratio for the stock is about 32. The current P/E is at about 14, suggesting that the stock is much cheaper than usual. However, serious caution needs to be applied here as there were a few years where the market was pricing HD with a P/E in the high 50’s. If we go a bit conservative, then I think we can estimate that the P/E ratio could rise a bit as earnings continue to rise (assuming they do).
4. The stock has consistently raised its dividend.

My analysis using my Canadian Shareowner’s Association software package shows that the current price of HD is in the buy range, based on various estimates that I made (continuing to grow, but not nearly as aggressive as they have been). Therefore, the value buyer in my is screamin’ buy more, but the guy who shopped there and was treated like sh!^ and the guy who does not completely agree with the compensation of the CEO is saying hold off. I think I need to keep in mind that these issues are based on emotion and we all know how that can treat us in investment scenarios. Go with the facts, and the facts say buy. Question is, can I pull the trigger….


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6 Comments so far

  1. Journey To Financial Freedom » Carnival Of Investing #24 May 29, 2006 7:41 am

    […] The Trouble with Home Depot - Buying More for the Dividend? […]

  2. yielder May 31, 2006 6:27 am

    Therefore, the value buyer in my is screamin’ buy more, but the guy who shopped there and was treated like sh!^ and the guy who does not completely agree with the compensation of the CEO is saying hold off.

    Good stock analysis is at least a 20/80 split between quantitative - the number crunching and qualitative - understanding the company. The numbers may say its a screaming buy but they beg the question, why?

  3. Doug Pedersen June 1, 2006 10:21 pm

    I think the shareholders feel like you did when you went shopping there. Huge witholding for the Board of Directors.

  4. yielder June 6, 2006 5:29 am

    Nardelli’s Dishonor

  5. yielder June 6, 2006 5:33 am

    Nardelli’s Dishonor

  6. Don Wenzel September 27, 2006 8:16 am

    I can’t under stand how a company as large as Home Depot can treat customers so poorly. I signed my roofing contract on 9-14-05, Home Depot has now installed three roofs on my house and are getting ready to install the fourth one. They pay their contractors as little as possible and that is why they get poor quality contractors. Home Depot does not return phone calls, emails or letters for weeks or never. When you see my web page you can see the distruction they do to peoples lives and property. When you search the internet for “poor customer service from home depot” you can read for days, how do they get away with this?

    http://www.freewebs.com/myroof

    Thank you,
    Don Wenzel
    Oxford, Michigan

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