Key Points
Home Depot’s dividend yield of 2.68% provides a healthy source of income.
Based on the company’s projected earnings growth and valuation in 2056, investors will need to dollar-cost average to reach millionaire status.
Until mortgage rates come down, Home Depot will register sluggish growth.
Home Depot(NYSE: HD) is a behemoth in the home improvement industry, reporting fiscal 2025 (ended Feb. 1) net sales of $165 billion. And its shares have produced massive wealth for early investors. In the past 30 years, this retail stock has generated a total return of 5,840% (as of April 21), growing $17,000 into $1 million today.
It's time to look at the future. Could Home Depot quietly turn a $25,000 investment into a millionaire retirement?
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Run the numbers to get to millionaire status
To set the backdrop, let's say you have 30 years until retirement. That means you have three decades of compounding that can work to grow a $25,000 initial capital outlay into a seven-figure sum. Time is a critical factor.
Home Depot shares currently trade at a price-to-earnings (P/E) ratio of 24.4. I view this valuation as neither cheap nor expensive. So, the P/E multiple is fair. For our exercise, we'll assume that the valuation will be the same in 2056.
The key variable that will drive returns for shareholders is Home Depot's profit growth. In the past decade, the company's diluted earnings per share (EPS) increased at a compound annual rate of 10%. It's likely this pace will decelerate in the future, since research from The Motley Fool shows that Home Depot is one of the largest consumer discretionary businesses in the world. If diluted EPS rises at a 7% annualized clip, then it will be almost eight times higher in 2056 compared to fiscal 2025's total.
There's also the quarterly distribution. This retail stock pays a dividend yield of 2.68% today.
Combine diluted EPS growth with the dividend yield, and investors are staring at a potential 9.7% annualized total return. This seems reasonable, in my view. After $25,000 compounds at this rate for 30 years, the end result is $402,000.
Not all hope is lost, however. In 2056, there's a possibility that Home Depot stock trades at a higher P/E ratio than it does today. And management has a history of growing the dividend. This could automatically introduce greater upside.
Investors can also take initiative to stack the odds in their favor. In addition to buying $25,000 worth of shares upfront, it's a smart idea to consider dollar-cost averaging. If you also purchased $310 of Home Depot stock every month, it would put you above a $1 million balance in 30 years.
Home Depot is facing a tough environment
It's easy to figure out that Home Depot is a high-quality business. It dominates in a fragmented industry, possesses a tremendous brand, has huge scale, unrivaled distribution and inventory availability, and is consistently profitable.
But the company has struggled in the tighter macro environment. Same-store sales were only up 0.3% in fiscal 2025. And they are expected to increase 1% (at the midpoint) in the current fiscal year. Until mortgage rates start to come down, giving households the confidence they need to spend on home projects, investors should expect slow growth from Home Depot.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.
