Source: PaxForex Premium Analytics Portal, Fundamental Insight
On June 13, Home Depot, the home-improvement retail chain, will pay its quarterly dividend for the 148th consecutive time. The Atlanta-based company operates over 2,300 stores nationwide, generating substantial profits. A portion of these profits is regularly shared with shareholders through dividends.
Home Depot's upcoming dividend is straightforward, but the various terms and dates associated with dividends can be confusing. Recently, the company went ex-dividend on May 30, raising questions for some investors about its significance.
Important dividend-related terms include the declaration date, the ex-dividend date, and the payable date. For Home Depot, a quarterly dividend of $2.25 per share was declared on May 16, consistent with its previous March payment. This equates to $9 per share annually. With the stock trading around $330, the forward yield is approximately 2.7%, a favorable rate.
The declaration on May 16 was merely an announcement. The critical date was May 30, the ex-dividend date. To be eligible for the upcoming dividend, investors needed to own shares by May 29. Those who purchased shares on or after May 30 are not entitled to this dividend payout.
As of now, Home Depot has determined the shareholders eligible for the June 13 dividend, and it is simply a matter of waiting for the payment to be distributed.
In preparing this article, it became clear that one of the most frequently asked questions from investors is when they can sell Home Depot stock and still receive the dividend. Home Depot's situation is unique because the record date, which identifies all shareholders, and the ex-dividend date are the same - typically, there is at least one day between these dates. As a result, investors could have sold their shares on May 30 and still received the $2.25 per share dividend on June 13.
This question suggests that some investors might be primarily interested in purchasing Home Depot stock solely for the dividend payment. Their strategy might involve buying shares just before the ex-dividend date and then selling them at the earliest opportunity.
However, this approach is misguided. Instead of focusing on how quickly they can exit an investment in Home Depot while still receiving a dividend, investors should consider whether the stock can outperform the S&P 500 - a commonly used benchmark for average market performance.
Dividends play a crucial role in this context. While Home Depot's stock has not outperformed the S&P 500 over the past five years, shareholder returns are significantly higher when dividends are reinvested. Holding shares of high-quality businesses for the long term and reinvesting dividends can lead to substantial compounding of returns. This strategy becomes increasingly effective the longer the shares are held. Conversely, attempting to time trades around the ex-dividend date is a flawed approach.
Investors should also note that this upcoming dividend payment marks the 149th consecutive quarter that Home Depot has paid a dividend, spanning over 37 years. The dividend tends to increase most years, significantly enhancing overall returns.
Home Depot is a stable and consistent business with long-term growth potential. With various avenues for earnings growth in the coming years, the company's dividend is expected to continue rising as it has historically.
Therefore, if Home Depot's dividend appeals to you, avoid fixating solely on the imminent payment. Instead, focus on the long-term prospects of the business and the dividend. This is where substantial returns can be realized.
As long as the price is above 32.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 35.19
- Take Profit 1: 38.00
- Take Profit 2: 41.00
Alternative scenario:
If the 32.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 32.00
- Take Profit 1: 30.00
- Take Profit 2: 28.00
