During a bear market, home improvement stocks have historically been solid defensive moves
The housing sector is slowing down. Rising mortgage rates have the predictable effect of cooling demand.
Or are they? While homeowners may not be able to get the same premium they were a year ago, there’s still one wide range of homes on the market. And once these homes change hands, new homeowners will be ready to make their new home their own.
That’s not the only catalyst for home improvement stocks, though. Homeowners who decide to “love it” rather than “list it” are likely to put some cash into one of their biggest investments while waiting for the house pendulum to swing back in their favor.
In this article, I’ll give you three home improvement companies that continue to generate strong revenue and income. And two of these companies are also members of the exclusive Dividend Aristocrat club. These are companies that have increased their dividend for at least 25 consecutive years.
If that’s the kind of growth-income balance that appeals to you, it may be time for you to consider these three home improvement stocks.
Lowes (NYSE: LOW† stock has fallen by about 30% in 2022. That’s bigger than the broader market. But over the past month, the stock has shown signs of bottoming out. And with the stock nearing its 52-week low, it may be time for investors to take a closer look.
The driving force behind that sentiment may be the company’s earnings. In May, Lowe’s closed its fiscal year. Revenue growth came in at an uninspiring 1% growth. But profits increased by 19%. Even as companies head into an earnings recession, a P/E ratio slightly below the industry average means Lowe’s will likely be able to deliver growth in the next fiscal year, albeit at a slower pace.
And Lowe’s offers investors a rock-solid dividend that it has risen in each of the past 48 years. The current payout is $3.20 per share on an annualized basis, and the company has delivered an average of 17% dividend growth over the past three years.
Home Depot (HD)
Just as investors can argue Coca-Cola (NYSE: KO† versus pepsi (NASDAQ: PEP† among the consumer discretionary, they can often plant their flag with Lowe’s of DIY store (NYSE: HD† when it comes to home improvement stocks.
To be fair, none of these stocks seem like a bad choice for investors concerned about a recession. Home Depot delivered a strong earnings report in May 2022. Sales increased by 3.8% and earnings per share increased by 5.8%. The company achieved strong same-store sales growth, largely due to its relationship with professional contractors.
Of the three stocks in this article, Home Depot has the largest dividend yield (2.68%) and the largest payout ($7.60). And while not a dividend aristocracy, the company has increased its dividend in each of the past 14 years.
Sherwin Williams (SHW)
Paint is one of the most cost-effective ways to give a home a refreshing update. And as we head into fall, homeowners are turning to finding that perfect paint swatch to transform a room. That’s enough to say Sherwin Williams (NYSE: SHW† on my radar and maybe yours too. Historically, the current quarter and the next quarter have been the strongest for the company in terms of revenue.
But the skeptics will point out that earnings have been a mixed bag. The company has missed analyst expectations in two of the last four quarters and earnings have been lukewarm in the other two. And I admit that mixed earnings outlook will likely push current target prices down from their 30% rise rate.
That said, SHW stocks offer both growth and income, which is attractive in this volatile market. Sherwin Williams’ 1% dividend yield probably won’t make income investors swoon. But the company does pay $2.40 annually. The company also has a three-year dividend growth rate of 24.26% and has increased its dividend in each of the past 44 years.