The S&P 500 index continues to march higher. It’s up 9% year to date (as of May 22), shrugging off inflationary pressures and broader macroeconomic uncertainty. Tech stocks keep pushing the benchmark forward.
But investors might be thinking that it’s time to search for opportunities in names that haven’t performed well recently. There are high-quality businesses out there that provide a steady income stream, but the market isn’t fully appreciating them today. This S&P 500 dividend stock might be a great example.
Is this company a smart buy in 2026?
Image source: Getty Images.
Macro pressures are holding this company down
During the three-month period that ended May 3, which is the first quarter of its fiscal 2026, Home Depot (HD 0.23%) beat Wall Street expectations. It reported revenue of $41.8 billion, which represented a 4.8% year-over-year increase from Q1 2025.
Net income fell 4.2%, as operating expenses rose faster than the top line.
Despite exceeding analyst estimates, Home Depot continues to grapple with the unfavorable macroeconomic environment. Its same-store sales were up by just 0.6%, with management expecting a 1% (at the midpoint) bump for the full fiscal year. Even worse, comparable transactions fell for the fourth straight quarter, an indication of softer foot traffic.
There are notable variables keeping Home Depot down. Mortgage rates are historically elevated, housing turnover is low, and consumer confidence is extremely weak. This discourages people from tackling expensive renovation projects.
Management has its foot on the gas pedal
External economic forces haven’t gotten in the way of the leadership team’s focus. Home Depot is strengthening its position in the professional segment of the overall home improvement market.
In 2024, the company purchased SRS Distribution, a building products wholesaler, for more than $18.2 billion. Home Depot just acquired Mingledorff’s, a distributor of heating, ventilation, and air conditioning equipment. And last year, Home Depot bought GMS, another specialty products distributor, for $5.5 billion. These moves give the business better exposure to an estimated $1.2 trillion addressable opportunity.
Professional customers are an extremely important demographic. Contractors, roofers, electricians, and plumbers handle multiple complex jobs, so they spend more and visit stores more frequently.
The long-term industry outlook still looks promising. For starters, there is a tremendous amount of home equity that can be leveraged in the future. This can unlock a lot of untapped financial power from consumers.
The aging housing stock is another factor to keep in mind. The median age of a home in this country is 44 years old. That figure rose 10% over the prior five years. Older houses, unsurprisingly, require more maintenance and upkeep.
Home Depot is the biggest player in the market. But this industry is massive and fragmented. With its robust supply chain, wide inventory assortment, omnichannel capabilities, and brand recognition, this company is in a favorable position to steadily take market share.
Today’s Change
(-0.23%) $-0.71
Current Price
$313.07
Key Data Points
Market Cap
$312B
Day’s Range
$311.46 – $314.96
52wk Range
$289.10 – $426.75
Volume
3M
Avg Vol
4.4M
Gross Margin
31.14%
Dividend Yield
2.95%
Investors can generate income while they wait for improvements
As of this writing on May 22, shares of Home Depot trade at a troubling 28% below their peak. This high-water mark was established in December 2024. The market appears disappointed with how macro trends are negatively impacting the business.
But income investors might be pleased with the current dividend yield of 2.98%. This is almost triple the S&P 500 index’s 1.05% yield. And it highlights the company’s focus on shareholder capital returns.
Home Depot has paid a dividend in 157 straight quarters. It’s funded by consistent profits. Over the past decade, the company’s quarterly operating margin averaged 14.1%. And in fiscal 2026, 2027, and 2028, analysts believe it will generate $49 billion in total free cash flow.
With the stock well off its record, investors might find the dividend yield compelling as they wait for the fundamentals to improve.
