HD is cheap at its 52-week low with high yield, but investment appeal depends on returning to growth given current stagnation.

Stock number two that I'm going to share today is Home Depot, ticker symbol HD. I talked about Lowe's in my video earlier this week. So, Home Depot just hit a 52-week low. It's down 14% over the past 5 years, and it's down 28.5% over the past year.

Now, everyone knows Home Depot, one of the great American retailers. Now, if you want to see great, let's talk about the dividend growth run they went on from 2012 all the way through 2024.

The stock was a dividend growth machine. However, this is another case of slowing growth. Over the past 10 years, the Home Depot dividend's up 237%. That's a 12.94% compound annual growth rate.

However, over the past 3 years, it's only up 11.48%. That's a 3.68% CAGR. And the most recent dividend increase was only 1.3%. The one prior that, 2.22%.

But, here's your opportunity. You're buying it at a 52-week low. So, that means a historically high yield on cost. Over the past 5 years, it's currently in the 100th percentile.

So, this is the highest dividend yield over the past 5 years, 3.18%. This is forward-looking, and it's one of the highest over the past 10 years, only being beat by the peak of the 2020 COVID crash.

And if we go back to 2007, it was higher in the great financial crisis, which makes sense. Home Depot, it's a hardware store, a home retailer. The real estate market was not doing good in great financial crisis.

We are definitely not in that same environment today, but Home Depot's in a different space than it was back then.

So, how's the dividend safety of Home Depot doing? Right now has a 61% free cash flow payout ratio. That's based on the trailing 12 months. It was 72% in 2026, and it's always been sustainable over the past 10 years, but it has been trending slightly upwards.

Same with the earnings payout ratio, it's gone slightly upwards over the past 10 years. It was 64% in 2026 and 64.8% over the trailing 12 months. So, overall, I'm not super worried about a dividend cut at Home Depot.

But, I'll show you a few things I am worried about. Growth is slowing down. Over the past 5 years, adjusted earnings per share is down 1%, so it's moved nowhere. The prior 5 years though were fantastic growth.

So much so that over the past 10 years, the earnings per share is up 139%. Nearly a 10% CAGR. So, the question is whether they can get back to that growth and this historic track record of high growth at Home Depot.

Now, right now, analysts are not necessarily thinking so. They're projecting mid-single-digits earnings per share growth in the coming years, which is not bad, but it's not great.

Now, to be fair, free cash flow is doing slightly better, up 24% over the past 5 years. That's a 4.75% CAGR. But, this starts to get into my red flags with Home Depot stock, and it's somewhat similar to what I was mentioning with Lowe's stock.

They were doing stupid share repurchases for many years. $14 billion in 2021. For context, they have an annual that's currently $9.22 billion. So, they had many years in a row where their share repurchases and dividend payments were well above the cash they were generating.

And the reality is they did some of that with debt. So, that's why you see Home Depot's net debt go up dramatically over the past decade. It's currently at positive $60.4 billion.

This is the same exact story with Lowe's, they did the same exact playbook. So, I'm sitting here analyzing Home Depot, and my big thing is just where's the growth? If the company's not growing, you got to buy the stock cheap.

Now, luckily it's at its 52-week low, so it's getting closer to a fair value. And over the past 5 years, the median P/E ratio is 22.88, so it's currently trading below its historic multiple.

But the reality is is that the fair value's not growing. It's stagnant. Now, it has grown over the long run. If they can return to growth, then it could be a good buying opportunity.

As an example, the fair value actually dropped for many years following the Great Financial Crisis. But the stock price was also down a lot, so created this awesome condition of you're buying in at cheap valuation, and then they had a decade, 15 years of growth after that.

So, if you're thinking of buying Home Depot stock right now, it's definitely the cheapest it's been in a while, but it all comes down to growth.