Home Depot (NYSE:HD) has split its stock 13 different times since its initial public offering in 1981. It has been 25 years since the last one. 

The home improvement retailer has been a phenomenal stock to own for its entire history as a publicly-traded company. A $10,000 investment at the IPO would be worth more than $330 million today with reinvested dividends.

With fiscal third-quarter earnings scheduled for Tuesday, Nov. 12, it might be the time when the DIY warehouse announces its next stock split.

24/7 Wall St. Insights:

• Home Depot (HD) has a long history of splitting its stock to keep them affordable for investors, though it has not split its shares in 25 years.
• The home improvement retailer typically keeps its stock well below $100 a share, but today it goes for four times that price.
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Building on a foundation of growth

Home Depot is the world’s largest home improvement retailer. It generated $153 billion in sales last year, and though sales are down less than 1% through the first half of 2024, management expects revenue to rise between 2.5% and 3.5% for the full fiscal year. It just might exceed those goals.

Despite existing U.S. home sales declining to a 14-year low in September as prices remain stubbornly high and mortgage rates rose, even though the Federal Reserve cut interest rates, Home Depot has several important tailwinds behind it.

The average age of owner-occupied homes in the U.S. is 40 years old, according to the Home Builders Association. As homes get older, they need more maintenance and Home Depot is in the perfect spot to capitalize on this.

Its scale, operational quality, and brand recognition are beyond compare in the industry. It is what led HD stock to the outsized performance  it recorded over the decades. Yet the aging supply of homes is not the only factor pointing towards future growth.

There is also a shortage of housing inventory. The National Association of Realtors estimates a six-month supply of homes is sufficient for the market to match demand. Yet after hitting a record low of 1.6 months supply in 2022, the market has still failed to reach equilibrium and inventory today stands at 4.2 months. Better than the lows, but not enough to even the playing field. More homes still need to be built.

Shares are trading near record highs

Although professional contractors account for only 10% of Home Depot’s customers, they are responsible for about 50% of its sales. An aging housing market out of equilibrium with demand bolsters the growth thesis for the home improvement center.

So why would Home Depot split its stock now? Shares of the retailer are up 15% year-to-date and 35% over the past 12 months. They trade at a near record high of almost $400 a share (they’re off 5% from their peak). 

When Home Depot last split its stock 3-for-2 back in 1999, the stock was trading at $102 per share, the highest ever for an HD stock split. The stock has grown from $12 per share at its IPO to more than four times the price of the last split. They are a prime candidate for a reduction in value to make them more accessible to small, retail investors.

Returning value to shareholders

Naturally, stock splits are a corporate non-event as they do not affect the underlying fundamentals of the company. Investors, though, love them because they are seen as a bullish sign by management of future growth. 

And though companies can split their shares for any reason, management often cites increasing liquidity and making their shares accessible to smaller investors as a reason for doing so. Home Depot’s history of splitting its stock when it has gotten away from the average investor makes this an opportune time to split them again.

It also likes to return value to shareholders, especially in the form of dividends. The retailer’s payout currently yields 2.2% and it has raised the dividend at a compound annual growth rate of over 16% for the past decade. It has also increased the payout for 32 consecutive years, making it a Dividend Aristocrat.

Adding its 14th stock split to its record would be yet another example of Home Depot making its stock a winning play for investors.

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