2 home improvement stocks for dividend-loving investors – September 22, 2022

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The home improvement industry held up well in a challenging macroeconomic environment as the inflation-ridden economy kept home buying activity in check. Rising mortgage and interest rates, soaring new home prices, and rising construction costs have shifted millennial spending toward home improvement and renovation activities. Renovating interiors and exteriors, do-it-yourself (DIY) projects for decorating and maintaining furniture and fixtures, and hiring professionals for nice and cozy home improvements are commonplace lately.

In the coming days, home improvement companies are poised to benefit from investments in expanding digital and omnichannel capabilities to meet demand, execute growth strategies, and acquisitions. These, combined with rapid urbanization and favorable trends in the housing market, should result in sustained consumer demand. Meanwhile, the home improvement industry is not immune to inflationary pressures in product categories and higher transportation costs.

While the home improvement industry is an attractive place to invest, dividend-paying stocks further enhance the rewards for investors, making it a lucrative investment idea. Dividend-paying stocks are non-cyclical, meaning their performance is not tied to the economy as a whole. Companies are steadily increasing dividend payouts, reflecting confidence in their earnings growth potential.

With the help of the Zacks Stock Screener, we have selected two stocks from the Zacks Building Products – Retail sector that have a Zacks rank of #3 (Hold) and a dividend yield greater than or equal to 2%. The shares also have a five-year history of dividend growth and a payout ratio of less than 60, which reflects ample headroom for future dividend increases.

You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The aforementioned combination is attractive to investors interested in long-term income based on stability in a volatile environment.

Our choices

Actions like Home Depot, Inc. (HD free report) and Lowe’s Companies (DOWN Free Report), which steadily increase dividend payouts, not only provide investors with the opportunity to take advantage of the sector’s growth prospects, but also protect them against the challenging macro environment.

Home deposit: The Atlanta, Georgia-based company is the world’s largest home improvement specialty retailer by net sales. HD benefited from strong demand for home improvement projects, robust housing market trends and ongoing investment. Continued strength in the Pro and DIY categories, and digital momentum were key drivers. Its interconnected retail strategy and underlying technology infrastructure has helped boost web traffic in recent quarters, driving digital sales.

The Home Depot has an estimated long-term earnings growth rate of 11.2%. The company pays a quarterly dividend of $1.90 ($7.60 annualized) per share, yielding a yield of 2.77% at the current share price. HD’s payout ratio is 47, with a five-year dividend growth rate of 17.02%. (See HD’s dividend history here)

Lowe Companies: The leading Mooresville, North Carolina-based home improvement retailer benefited from strong growth in its Pro business. LOW also remains well positioned to capitalize on demand from the home improvement market, supported by investments in the technology and commodity category. The gains from the Total Home strategy and the execution of the perpetual productivity improvement initiative should drive the company’s results in the short and long term. The Total Home strategy has resonated well with Pro and DIY customers for a while.

Lowe’s has an estimated long-term earnings growth rate of 13.1%. The company pays a quarterly dividend of $1.05 ($4.20 annualized) per share, yielding a yield of 2.2% at the current share price. LOW’s payout ratio is 33, with a five-year dividend growth rate of 16.05%. (See LOW’s dividend history here)

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