4 Best Home Improvement Dividend Stocks to Cash In
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Home improvement and DIY stocks have suffered from rising inflation over the past two years as millions of Americans cut back on discretionary spending and delayed plans to remodel or renovate their homes. In a survey by financial services company Discover, about 33% of respondents said they delayed their plans for home renovation because of inflation, while 49% said they were reducing discretionary spending.
But that’s about to change as inflation begins to tick lower and the Fed has indicated that a rate cut would be on the table during its September meeting.
The Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University recently released data on an important metric that projects the annual rate of change in consumer spending on the improvement and repair industry. The latest reading of the metric, known as the Leading Indicator of Remodeling Activity (LIRA), shows the decline in annual spending on renovation and maintenance by homeowners will fall to just -0.5% by the end of the second quarter of next year, much better than a 3% decline for the second quarter of 2024.
Let’s look at the top home improvement and remodeling dividend stocks positioned to benefit from this upcoming consumer spending cycle.
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Home Depot
Home Depot Inc (NYSE:HD) is the go-to place for millions of Americans for all their DIY project needs. The company operates a network of about 2,300 stores across North America with a growing digital presence. During the first quarter, Home Depot’s online sales rose 3.3%. About half the company’s sales come from DIY customers with the rest from roofing and landscaping services.
Amid pressures in the DIY segment due to rising inflation, Home Depot is expanding its business, focusing on professional contractors, roofers and other home professionals. It announced in June its plan to acquire the Texas-based specialty distributor of roofing, landscaping and pool supplies SRS Distribution for about $18.25 billion. Home Depot said this deal would increase its total addressable market to $1 trillion.
In June, D.A. Davidson upgraded Home Depot to Buy from Neutral, citing a favorable interest rate environment and an increase in existing home sales. The firm set a $395 price target for the stock.
Lowe’s
With about 1,700 stores, holding the second-biggest position in the home improvement industry and decades of dividend growth, Lowe’s Companies Inc (NYSE:LOW) is a no-brainer stock to benefit from the upcoming rise in consumer spending on home remodeling projects. The latest dividend hike from Lowe’s came in May when the company increased its quarterly payout by 4.5% to $1.10 per share. Over the past 10 years, Lowe’s dividend has increased at a CAGR of about 20%.
In May, the company posted first quarter results that beat analyst estimates on EPS and revenue. Adjusted EPS in the period came in at $3.67, beating estimates by $0.71. Revenue fell 4.3% yearly but was $300 million higher than market estimates. The company reaffirmed its full-year outlook.
JPMorgan recently increased its price target for Lowe’s to $272 from $268.
Trane Technologies
Trane Technologies PLC (NYSE:TT) makes heating, ventilation, air conditioning and refrigeration systems. The company is positioned to benefit from an expected rise in home improvement and renovation in the coming months if consumer spending rebounds.
The company last month smashed analyst estimates for the second quarter. Trane now expects revenue growth of 10% in the period in 2024 and also raised its guidance for EPS. Trane Technologies’ growth drives the strong demand for commercial HVAC, as companies spend more to make their buildings climate-friendly and invest in data centers. During the latest earnings call, Trane Technologies’ management said that its second quarter bookings were up 19% versus the prior year. Bookings in the commercial HVAC business in the Americas rose 20% in the quarter.
Trane Technologies has a dividend yield of about 1% and pays a per-share quarterly dividend of $0.84.
However, the stock’s valuation has been raising alarms. Trane’s shares are already up 50% over the past year. Its forward P/E is 31.16, compared with the industry median of 23.
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Sherwin-Williams
Ohio-based Sherwin-Williams Co (NYSE:SHW) makes paints, coatings, and floor coverings. The company operates in three segments: paint stores, performance coatings, and consumer brands. It is behind notable brands like Sherwin-Williams, Valspar, Dutch boy, Minwax, and Thompson’s WaterSeal. Unlike its competitors who rely on retailers, Sherwin-Williams operates a network of about 4,800 stores.
Last month, Sherwin-Williams posted mixed second-quarter results, missing analyst estimates on revenue. However, the company increased its full-year guidance for adjusted income per share to $11.10 to $11.40. During the latest earnings call, the company said that it expects the market to remain “choppy” in the coming months but saw improvement in the residential paints segment amid an increase in the completion rate of single-family starts.
While Sherwin-Williams has a low dividend yield (about 0.84%), it has increased its payouts for 45 years without a break. Last year the company returned about $2.1 billion to shareholders via dividends and buybacks.
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This article Americans Ready to Renovate Their Homes: 4 Best Home Improvement Dividend Stocks to Cash In originally appeared on Benzinga.com
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