Monday, 23 December 2024
by BD Banks
Investors can appreciate that putting money to work in the stock market and having a very long-term mindset can end up resulting in truly remarkable results. This makes investing something I believe all people should at least learn the basics of.
While the overall market has climbed over time, there have been certain businesses that have been massive winners. In fact, there’s one dominant retail stock that has generated a monster total return of 3,330,000% (as of Dec. 18) since its initial public offering in September 1981. That means a $10,000 investment made just over four decades ago would be worth an astonishing $333 million today.
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You don’t want to miss this company. Perhaps it deserves a closer look right now.
It’s quite amazing to think that Home Depot (NYSE: HD) has been able to put up such a fantastic performance. I’m sure most readers would’ve assumed the business in question had exposure to the technology sector.
However, the world’s leading home improvement chain has taken care of its shareholders by operating a simple business model, which is to sell tools, supplies, and equipment to both DIY and professional customers via a network of physical stores. That playbook hasn’t really changed.
About 30 years ago in fiscal 1993, Home Depot generated $9.2 billion in total sales. And it had 264 stores in operation. The management team in those days understood quickly that the correct strategy was to invest aggressively to rapidly expand the footprint across the country.
These days, there are 2,345 Home Depot locations in all, with 2,024 in the U.S. and its territories, 182 in Canada, and 139 in Mexico. What’s more, the company claims that 90% of the population in this country is within 10 miles of a Home Depot. That broad reach is hard to overstate.
Of course, it’s not a shocker that all of that growth has resulted in a dominant retail enterprise. In the last 12 months, Home Depot reported $155 billion in revenue, astronomically higher than in fiscal 1993. And the business posted almost $15 billion in net income in the last year.
Home Depot’s financial position these days affords it the ability to return copious amounts of cash back to shareholders. The company paid out $6.7 billion in dividends in the last nine months. The dividend yield is just over 2.3% right now. Even more impressive is the fact that the quarterly payout has increased 281% in the past decade.
Management also focuses on share repurchases. In the past five years, the diluted outstanding share count has shrunk by 9.2%. This raises the ownership stake of existing investors.
While Home Depot’s historical track record of growth is undeniable, the company is facing a difficult reality today. Tighter macro conditions in recent years, particularly higher interest rates and inflationary pressures, have discouraged consumers from taking on renovation projects. This helps explain why same-store sales dipped 3.2% in fiscal 2023, with the expectation that they will decline 2.5% in the current fiscal year.
However, Home Depot does benefit from some favorable industry tailwinds. The median age of a home in the U.S. has steadily increased over time. Older houses understandably need more repairs and upgrades.
Additionally, the U.S. continues to face a substantial housing inventory shortage. Low housing supply incentivizes people not to move, instead investing in renovations at their current dwellings.
At a high level, I think it’s safe to assume that the overall housing and home improvement industry will continue to be critical parts of the economy decades from now. Investors shouldn’t expect forward returns to resemble the past, but Home Depot certainly deserves to be on your watch list.
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Neil Patel and his clients have 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.