Home Depot Stock: Is a Big Dividend Increase Around the Corner?

Earlier this month, home-improvement retailer Home Depot (NYSE: HD) said it will announce financial results for its fourth quarter and the full year of fiscal 2017 on Feb. 20. While the fourth-quarter results will likely be interesting, dividend investors may be paying attention to the quarter for a different reason: Home Depot's fourth-quarter earnings release usually marks the date the company announces its annual dividend increase.

Dividend investors have good reason to pay attention to Home Depot when it comes to its dividend. Last year, the world's largest home-improvement retailer announced a fat 29% boost to its dividend -- well above the 17% dividend increase Home Depot announced the year before. This extended a long track-record of dividend payments.

A roll of one hundred dollar bills next to a sign reading, dividends

Image source: Getty Images.

Home Depot is likely to announce another meaningful dividend increase. Is the stock's 1.9% dividend yield about to get even better?

A closer look at Home Depot's dividend

There's a lot to love about Home Depot as a dividend stock. But its impressive dividend history is definitely a good place to start.

Home Depot's dividend goes way back. Including the dividend it paid during its fourth quarter of 2017, the company has paid quarterly dividends for 124 quarters in a row. Even more significant, Home Depot has prioritized dividend growth recently. During the past five years, Home Depot's dividend has increased at an average rate of 22%.

Thanks to its exceptionally strong 29% dividend increase last year, Home Depot now sports a 1.9% dividend yield. Sure, it's not mouthwatering -- the average dividend yield of stocks in the S&P 500 is 1.8%. But when it's viewed with its recent history of strong dividend increases and potential for more dividend growth in the years ahead, it's high enough to get the attention of investors looking for income.

Expect a strong double-digit dividend increase

With strong 17% and 29% dividend increases in 2016 and 2017, respectively, can Home Depot keep up this pattern of meaningful increases?

A man, next to his dog, working on a home improvement project.

Image source: Getty Images.

There are several reasons why another strong double-digit increase is likely when Home Depot announces its fourth-quarter results later this month. First, Home Depot benefited from a 15% year-over-year increase in its earnings per share for its trailing-nine-month period ending Oct. 29, 2017. In addition, Home Depot said in its third-quarter earnings release that it expected a meaningful 14% year-over-year increase in earnings per share for the entire year of 2017.

Finally, Home Depot updated its target dividend payout ratio last year, increasing the target from 50% to 55% of net earnings. Home Depot paid out just 46% of its trailing-12-month net earnings.

Sure, Home Depot may not increase its dividend by 29% again. But considering its fast-rising earnings and management's commitment to a more aggressive payout ratio, a dividend increase close to its five-year average growth rate of 22% is probable.

Home Depot will likely announce its annual dividend increase in its fourth-quarter earnings release, which is scheduled to publish on Tuesday, Feb. 20.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has the following options: short May 2018 $175 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.