Reopening the Economy Hasn't Slowed This Powerful Pandemic Trend

One of 2020's hottest trends hasn't slowed just yet...

With people stuck at home under lockdown orders, there was no better time to finish odd jobs around the house. And when you never leave the house, upgrades start to become more important. This started the boom in the home-improvement industry...

E-commerce site Rakuten said that online spending on tools and other home-improvement products surged 60% in the period from March to mid-April 2020. And Google search data also indicated that interest in home-improvement projects was spiking.

But this trend has continued even after the economy reopened. And it's not done yet. Today's company is a great way to play it...

Home Depot (NYSE: HD) is a $339 billion home-improvement giant. It's also what we like to call a "World Dominator."

These are companies that dominate their industries. They have the best brand names and the biggest competitive advantages. They can raise prices to stay ahead of inflation, or use their enormous sizes to keep costs lower than everyone else in the industry.

They also have consistently strong profit margins, gush free cash flow, and possess rock-solid balance sheets.

Home Depot shouldn't need much of an introduction... It's a one-stop shop for home-improvement needs. It sells lumber, tools, cabinets, faucets, and even gardening equipment.

Last year, Home Depot saw a surge in demand during the COVID-19 lockdowns. Sales grew 7% in the company's first quarter and more than 20% in each remaining quarter in 2020.

CEO Craig Menear said it best in a conference presentation last year...

I guess when you're stuck in your home for 11 or 12 weeks, you see all the things that need to be fixed...

For the full year, Home Depot posted sales of $132 billion, up 20% year over year. And it grew net income by 10%, while increasing free cash flow by nearly 50%.

Home Depot already had a reputation for rewarding shareholders through dividends and buybacks. From 2012 through January 2020, its annual dividend payment has risen more than fivefold – from $1.04 to $5.44 per share.

The company used its recent strength to keep this trend intact. In February, Home Depot announced it would raise its quarterly dividend payout by another 10%: from $1.50 to $1.65 per share. That also marks the 136th straight quarter (about 34 years) that HD has paid a dividend.

Home Depot has also raised its dividend in 33 out of the past 35 years... And in the other two years, 2009 and 2010, it kept its dividend steady despite the collapse of the housing market. Even in the most recent recession – which saw America's fastest-ever drop in gross domestic product – Home Depot was back to increasing its dividend. That just goes to show the strength of the home-improvement trend over the past year.

And the demand hasn't slowed just yet...

Last week, Home Depot reported first-quarter earnings per share ("EPS") of $3.86 versus the $3.08 estimate. Revenue for the quarter was $37.50 billion, beating the expectation of $34.82 billion. Comparable-store sales grew 31% in the quarter, beating the estimate for 20.2% growth.

Menear said the quarter represented a strong start to the company's 2021 fiscal year. He added that HD continues to see "unprecedented demand" for its products... so folks continue to flock to Home Depot stores. The company reported a 19% jump in transactions in the quarter, while the average sales ticket jumped 10% in the quarter.

This shouldn't be all that surprising. Last year, Menear said that he expects that the home-improvement boom is here to stay. He has nailed the call so far. This should provide further tailwinds for Home Depot's sales.

Home Depot's stock has performed just as well as its business. Over the past 12 months, the stock is up more than 30%. On a longer-term basis, the gains are just as impressive...

Over the past five years, the stock has formed a steady uptrend. Even with the initial shock forced by the pandemic, the shares have more than doubled over that time frame.

As demand for home improvement remains elevated, people are going to turn to the best retailer in the industry... Home Depot. That should provide continued support for its shares.

Sometimes investing is simple.