The home improvement industry has seen renewed interest in homeowners keeping their homes updated by embracing new technologies, such as smart home systems and virtual reality. This has brought a sea of changes in the construction and renovation process. Market participants have been witnessing a growing demand for customized and personalized home improvements to cater to the unique needs and preferences of homeowners.
Notably, 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.
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. Consequently, home improvement stocks are expected to witness only modest growth in 2023.
Nonetheless, the industry has been benefiting from accretive acquisitions, the focus on expanding supply-chain facilities and digital initiatives. Companies have been strengthening digital ecosystems, providing the best online assortments and bolstering omni-channel capabilities. These 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, i.e., 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 stocks also have a five-year dividend growth history and a payout ratio of less than 60, reflecting enough room for future dividend increases.
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 and Lowe’s Companies LOW, which regularly boost dividend payouts, not only offer investors the opportunity to gain from the industry’s growth prospects but also provide 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 have been the key drivers. Its interconnected retail strategy and underlying technology infrastructure have helped boost web traffic for the past few quarters, aiding digital sales.
Home Depot pays out a quarterly dividend of $2.09 ($8.36 annualized) per share, giving a 2.73% yield at the current stock price. HD’s payout ratio is 52%, with a five-year dividend growth rate of 14.5%. (Check HD’s dividend history here)
Lowe’s Companies – The Mooresville, NC-based leading home improvements 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 pays out a quarterly dividend of $1.10 ($4.40 annualized) per share, giving a 2.09% yield at the current stock price. LOW’s payout ratio is 32%, with a five-year dividend growth rate of 20.6%. (Check LOW’s dividend history here)
Lowe’s Companies, Inc. (LOW): Free Stock Analysis Report
The Home Depot, Inc. (HD): Free Stock Analysis Report
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