Home improvement retailers: analyzing dividend yields
Lowe’s (LOW) and Home Depot (HD) were trading at forward dividend yields of 1.6% and 2.1%, respectively, on January 22, 2016. This compares to forward dividend yields of 2.8% for the S&P 500 Index (IVV) (SPY) (VOO) and 1.8% for the S&P 500 Consumer Discretionary Sector Index (FXD) (XLY) (VCR). Dividend yields have dropped steadily for Home Depot while Lowe’s dividend yields traded in a narrower range and have seen a less pronounced fall over the years.
A large part of the historical dividend yield differentials stem from the differences in stock price performance for both retailers over the years. Home Depot’s stock price has appreciated by 408.7% since January 1, 2009, compared to Lowe’s, which is up by about 211.4%, nearly half that of its larger rival. HD and Lowe’s were trading at $122.76 and $70.50, respectively, on January 22, 2016.
Lowe’s stock price performance has also underperformed the overall consumer discretionary sector. For instance, the Consumer Discretionary Select Sector SPDR Fund (XLY) has appreciated by ~224%.
In terms of outperforming rivals, results have been mixed. Williams-Sonoma (WSM) has posted high stock price appreciation of 529.2% over the period, beating both HD and Lowe’s, while Bed Bath & Beyond’s (BBBY) performance has lagged along with the stock price, which is up by 64.9% over the same period. The S&P 500 Index is up by ~104.6% over the period.
HD and Lowe’s have also outperformed housing-market-oriented ETFs like the iShares U.S. Home Construction ETF (ITB) and the SPDR S&P Homebuilders ETF (XHB), which are up by ~137.8% and ~146.5%, respectively.
Returns for both Home Depot and Lowe’s have beaten the S&P 500 Index, the consumer discretionary sector, and housing-oriented ETFs over the past five years. HD and LOW have posted total annualized returns of 30.3% and 25.2%, respectively.
The next article discusses outperformance drivers for the two companies.