The home improvement industry has witnessed a boom in the past three years as homeowners looked for ways to make better entertainment and work-from-home spaces. Revamping interiors and exteriors, do-it-yourself (DIY) projects for decorating and maintaining furniture and fixtures, and hiring professionals for enjoyable and comfortable home upgrades have been gaining popularity recently.
The inflation-ridden economy has kept a check on home-buying activities. Experts believe that home remodeling projects will decline in 2023 due to the slowdown in existing home sales, house price appreciation and mortgage refinancing activity. Consequently, home improvement stocks are expected to witness modest growth in 2023.
Recent trends reveal that homeowners are pulling back from big-ticket discretionary project spends due to rising inflation. Instead, customers continue to focus on maintenance projects like spending on essential replacements and smaller repair projects.
Nonetheless, investments in the expansion of digital and omni-channel capabilities, the execution of growth strategies, and acquisitions are likely to aid home improvement companies in the long term.
Despite the recent slowdown in demand, the home improvement industry is an attractive investment place. Dividend-paying stocks in the industry further provide investors with opportunities to enhance their rewards. Dividend-paying stocks are non-cyclical, ie, their performances are not linked to the larger economy. The companies consistently raise dividend payouts, reflecting their confidence in their earnings growth potential.
With the help of the Zacks Stock Screener, we have selected two stocks in the Zacks Building Products – Retail industry with a Zacks Rank #3 (Hold) and a dividend yield of more than or equal to 2%. The stock also has a five-year dividend growth history and a payout ratio of less than 60, reflecting enough room for future dividend increases.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The above-mentioned combination is compelling for investors interested in long-term income based on stability amid volatility.
Our Choices
Stocks like Home Depot, Inc. (HD – Free Report) and Lowe’s Companies (LOW – Free Report) , which regularly boosts dividend payouts, not only offers investors the opportunity to gain from the industry’s growth prospects but also provides insulation against the tough macro environment.
Home Depot: The Atlanta, GA-based company is the world’s largest home improvement specialty retailer based on net sales. HD has been benefiting from ongoing investments in the One Home Depot plan. Continued strength in the Pro and DIY categories, and digital momentum has been the key driver. Its interconnected retail strategy and underlying technology infrastructure have helped boost web traffic for the past few quarters, aiding digital sales.
Home Depot has an estimated long-term earnings growth rate of 10.4%. The company pays out a quarterly dividend of $2.09 ($8.36 annualized) per share, giving a 2.78% yield at the current stock price. HD’s payout ratio is 51%, with a five-year dividend growth rate of 14.62%. (Check HD’s dividend history here)
Lowe’s Companies: The Mooresville, NC-based leading home improvement retailer has been gaining from strong growth in its Pro business. LOW is also well-positioned to capitalize on investments in the technology and merchandise category. Gains from the Total Home strategy and the execution of the Perpetual Productivity Improvement initiative are likely to drive the company’s results in the near and long terms. The Total Home strategy has been resonating well with the Pro and DIY customers for a while.
Lowe’s has an estimated long-term earnings growth rate of 12.6%. The company pays out a quarterly dividend of $1.10 ($4.20 annualized) per share, giving a 1.94% yield at the current stock price. LOW’s payout ratio is 30%, with a five-year dividend growth rate of 20.48%. (Check LOW’s dividend history here)