When you were in the middle of your last home improvement project, did you ever wonder how much Americans spend on home improvement every year?
Well, let me give you the answer – about $600 billion each year. No there’s no typo, I didn’t mistakenly add an extra zero to that figure. It’s $600 billion a year, and it’s only expected to keep growing.
That translates to massive potential value for investors, especially because international markets are seeing strong growth in this segment as well.
So, as labor costs keep rising and more people are “doing it themselves” – let’s look at a stock that has one of the strongest dividend track records ever, a solid return on capital, and continued healthy growth.
Lowe’s Companies, Inc. (LOW)
Lowe’s isn’t the biggest home improvement company out there (that accolade goes to Home Depot), but it’s certainly a contender. And when it comes to investing, it may even prove to be a superior choice to its larger rival.
Sure, it’s true that Home Depot has significantly higher margins, a greater market share, and more stable revenue (since it caters more toward professional contractors as opposed to DIY-ers).
But all that has already been priced in. Investing is about future expectations, and Lowe’s operating margins have been rapidly catching up. Should Lowe’s perform even better, its share price performance could likely outpace Home Depot’s. Further, Lowe’s is also increasingly muscling in on Home Depot’s market of professional contractors.
On the income side, both Lowe’s and Home Depot are strong dividend players. However, only Lowe’s can be called a “dividend king”. Since going public in 1961, Lowe’s has raised its dividend every year. Its dividend growth rate over the past 5 years is an impressive 20%.
In sum, with its improving margins and dividend track record, Lowe’s may be the way to go for investors looking at profiting from the $600 billion home improvement market.
To your wealth,
Felix @ Ace of Investing
