Better Stock to Buy Now: Home Depot or Lowe’s?

Home Depot and Lowe’s have delivered market-beating returns to shareholders in the last 20 years. Which blue-chip stock is a good buy now?

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Blue-chip dividend stocks such as Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW) have generated significant wealth for long-term shareholders. In the last 20 years, shares of Home Depot and Lowe’s have surged by 1,570% and 1,200%, respectively, after adjusting for dividends. However, as past returns don’t matter much to future investors, let’s see which dividend stock south of the border is a better buy in May 2024.

Is Home Depot stock undervalued?

Shares of Home Depot fell over 10% following its fiscal first-quarter (Q1) 2024 results (ended in January), in which the company reported revenue of US$36.42 billion with adjusted earnings of US$3.63 per share. Comparatively, analysts forecast revenue at US$36.66 billion with adjusted earnings of US$3.60 per share in fiscal Q1.

The home retailer’s net income fell to US$3.6 billion from US$3.87 billion or $3.82 per share in the year-ago period, while comparable sales were down 2.8% in the last 12 months.

Home Depot is wrestling with sluggish consumer spending amid rising interest rates and inflation. Customer and website visits in Q1 also declined as customer transactions were down 1% while average transaction prices fell 1.3% to US$90.68.

In fiscal 2024, Home Depot reported sales of US$152.7 billion, down 3% year over year, as the heavyweight posted its largest revenue miss in almost 20 years. Home Depot expects sales to increase by 1% this year and reaffirmed its previous guidance.

Earlier this year, Home Depot outlined a strategy to attract pros that account for roughly 50% of sales as this segment purchases larger quantities than the average individual. In March, Home Depot announced plans to acquire SRS Distribution, a leading distributor of roofing and landscaping supplies, for US$18.25 billion, diversifying its revenue base.

The drawdown in share prices has meant Home Depot’s dividend yield has increased to 2.6%, given its annual payout is US$9 per share. These payouts have risen by 16.8% annually since 2004, enhancing the yield-at-cost significantly.

Valued at US$340 billion by market cap, Home Depot stock is a giant. It ended Q1 with 2,337 retail stores in the U.S., Puerto Rico, Canada, and Mexico. It’s on track to end fiscal 2024 with adjusted earnings of US$15.3, indicating a forward earnings multiple of 22.4 times. Analysts remain bullish and expect HD stock to surge over 10% in the next 12 months.

Is Lowe’s stock a good buy right now?

Lowe’s reported revenue of US$18.6 billion and earnings of US$1.77 per share in fiscal Q4, higher than estimates of US$18.45 billion and US$1.68 per share, respectively. While it beat estimates in Q4, Lowe’s expects comparable sales to fall between 2% and 3% year over year in fiscal 2024. It also forecasts earnings between US$12 and US$12.3 per share in fiscal 2024.

Lowe explained that demand for do-it-yourself projects is down as consumers have shifted spending towards travelling and eating out.

Priced at 19 times forward earnings, Lowe’s stock is cheaper than Home Depot. Analysts are bullish on LOW stock and expect it to gain close to 10% in the next 12 months.

In addition to capital gains, Lowe’s pays shareholders a quarterly dividend of US$1.1 per share, indicating a forward yield of 1.9%. Moreover, these payouts have risen by 22% annually since 2004.

The Foolish takeaway

Home Depot and Lowe’s are market leaders that enjoy a wide competitive moat. Both companies also pay a tasty dividend yield and trade at a reasonable valuation. You can consider adding both blue-chip stocks to your equity portfolio and further diversify your holdings.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.

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