Portfolio New Addition: Home Depot

An addition to my new portfolio, The Home Depot Inc (NYSE: HD), a long term investment to help me to achieve my goals of achieving financial freedom through passive income. A look at the rationale behind investing in Home Depot and a reminder to why I should continue holding on to it.

The Home Depot logo | Investor MonkeyThe Home Depot, Inc. (NYSE: HD) is a home improvement retailer, selling an assortment of home improvements and lawn and garden products. The Home Depot also provides installation and home repair services for their customers.

The Home Depot serves mainly three primary groups of customers: do-it-yourself (DIY), do-it-for-me (DIFM) and professional customers.

As of the end of fiscal 2014 (ended February 1, 2015), with 2,269 The Home Depot stores averaging approximately 104,000 square feet of enclosed space with additional approximately 24,000 square feet of outdoor garden area, The Home Depot is the world’s largest home improvement retailer based on Net Sales.

Rationale for Additional to Portfolio

First and foremost, the addition of The Home Depot into the portfolio is to create a sizable dividend income in 15 to 20 years time. Thus it is important that the selection of the stock must be a fundamentally strong company with consistent dividend payouts.

For 24 of the past 26 years, The Home Depot has been paying increasing dividends with an average dividend growth of 16.3% while the Earnings per Share (EPS) grew at an average of 24.6% over the last five years. EPS is growing at a rate faster than the dividend payouts showing that the company has a history of being able to sustain its dividends payout using its earnings.

Current dividend yield (TTM) as of July 31 is 1.81% with the payout ratio at 43.1%. Though the current yield does not achieve the desired yield of 2%, knowing that the high dividend growth rate, I am still able to achieve a good return in the long run. The payout ratio, which is less than 50.0%, indicates that dividend payout can still be sustained or even grow in the event that there is a drop in its earnings.

Transaction Details

Date August 3, 2015
Shares 4
Price 117.05
Yield (TTM)* 1.81%
* as at time of purchase