Looking for Foundational Dividend Stocks to Build Your Portfolio Around? Consider This Dow Jones Passive Income Powerhouse

In a perfect world, Home Depot would prefer everyone to have a home and be able to afford home improvement projects. So a strained housing market shows just how difficult the current operating environment is. But there are always two sides to a coin.

The glass-half-empty outlook on Home Depot is that the macro backdrop is bad and shows no signs of improvement. So, near-term growth could remain stalled in the foreseeable future.

The glass-half-full perspective is that Home Depot’s results are barely going down despite so many challenges — a testament to the strength of its brand.

In other words, 2023 and 2024 have acted as a stress test on Home Depot, and the company has passed with flying colors.

When it comes to sizable dividend raises over the last 15 years, few companies can compete with Home Depot. The company has raised its quarterly dividend from $0.25 per share in 2011 to $2.25 per share in 2024 — with consistent raises every year during that period.

Investors have been able to count on raises like clockwork. Since 2013, Home Depot has announced a dividend raise in February or March (around the same time it reports full-year fiscal earnings). So, investors can expect another raise from Home Depot when it reports earnings on Feb. 25.

Home Depot’s consistent and significant dividend raises and dividend yield of 2.3% make it a solid choice for passive income investors.

In addition to its strong dividend, Home Depot sports a reasonable valuation. Its price-to-earnings (P/E) ratio is 26.2 and its forward P/E is 24.5 compared to a 22.9 median P/E over the last 10 years. Although Home Depot looks a little overvalued at first glance, it’s important to recognize that the home improvement industry is currently in a slowdown. So, Home Depot’s stock price has been outpacing its earnings growth in recent years.

Home Depot could be a coiled spring for economic growth. The company completed its acquisition of SRS Distribution for $18.25 billion in June 2024. The acquisition gives Home Depot extra exposure to the contractor market, helping diversify the overall business. The full potential of the acquisition has yet to be realized because of the slowdown in the industry.

The ability to make a countercyclical move of this size is a testament to the strength of Home Depot’s balance sheet, management’s focus on long-term strategy rather than short-term results, and Home Depot’s willingness to make a big-time acquisition, even if it takes a while to pay off.

All told, Home Depot looks a little pricey now. But the stock could start to look really cheap during the next expansion period, especially considering the added boost from SRS.

Companies that operate in cyclical industries tend to see big ebbs and flows in their sales and earnings. But not Home Depot. Zoom out, and the company’s performance is like a steady climb higher and then a flat line rather than a big downturn.

With fiscal 2025 marking the first full year post-integration of SRS, we could see a slight uptick in sales and earnings, even if interest rates remain high.

Home Depot is an excellent dividend stock to buy if you have a long-term time horizon. The growing dividend provides a worthwhile incentive to hold the stock through slowdowns. And the valuation is reasonable given the factors discussed. However, expect Home Depot’s near-term results to be under pressure until the macro climate improves.

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*Stock Advisor returns as of February 24, 2025

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.

Looking for Foundational Dividend Stocks to Build Your Portfolio Around? Consider This Dow Jones Passive Income Powerhouse was originally published by The Motley Fool