From the DividendInvestor news file this week: On Thursday, Lamar Advertising LAMR declared a quarterly dividend of $0.50, a 50% reduction from its previous rate. Based on an annual dividend rate of $2.00, Lamar's forward yield now stands at 3.0%. In the announcement, Lamar's CEO said: "While customer activity has picked up, as we noted when we reported first-quarter results, the trajectory of our business through the remainder of 2020 remains difficult to predict…given that uncertainty, the board concluded that adjusting the dividend for the second quarter is the prudent course of action. We plan to evaluate our dividend plans on a quarterly basis, giving consideration to our liquidity, our leverage and the operating environment that we foresee. We fully intend to honor our obligation as a REIT to pay out at least 90% of our full-year taxable income."
George Metrou will address this development in the upcoming issue of DividendInvestor. Also this week, Omnicom OMC declared a quarterly dividend that was unchanged from its previous payout.
Please see a new analyst update below from Morningstar Research Services for Home Depot HD.
Best wishes,
David Harrell
Editor, Morningstar DividendInvestor
News and Research for Dividend Select Portfolio Holdings
Boosting Home Depot's Fair Value
by Jaime M. Katz, CFA | Morningstar Research Services LLC | 05-26-20
We are increasing our fair value estimate for Home Depot HD to $184 from $179 per share after updating our 2020 forecast, which now includes an operating margin estimate of 13.2% versus 14.0% prior. However, we have adjusted our comp forecast up to 4.9% from 3.5%, leading to total revenue growth of more than 5% (versus 3.7% prior), as the firm continues to benefit from its essential business status. This implies a 2020 price/earnings ratio of 19 times and an EV/EBITDA multiple of 13 times.
Given the maturity of the domestic home improvement industry, we expect demand to depend on changes in the real estate market, driven by prices, interest rates, turnover, and lending standards. We project that sales can grow 4% over the next five years, supported by 3.6% average same-store sales increases and helped by offerings like buy online/pickup in-store and better merchandising, which drives market share gains. Longer term, we forecast gross margins to expand modestly over the next decade (by 40 basis points from 2019 levels, to 34.5%) while the selling, general, and administrative expense ratio leverages by 90 basis points (to 17%) and the firm continues to capitalize on its scale and supply chain improvement initiatives. This leads to a terminal operating margin of 16%, higher than the 14.4% achieved in 2019.
We believe Home Depot's operating margins and ROICs could improve as the firm focuses on improvements in speed and efficiency in the supply chain, and the opportunity to better penetrate the pro business with market delivery centers that leverage its delivery capabilities. Additionally, we think Home Depot still has other opportunities to expand the business. It can capitalize on product lines with weak market share leaders -- for example, Sears had been a strong operator in appliances, but as the brand deteriorated (ultimately declaring bankruptcy and embarking on massive store closures), Home Depot was able to steal share. Also, having deeper product lines to cross-sell (with brands like the Company Store offering exposure to textiles) could add incremental revenue potential, with some protection from online competitors such as Amazon, particularly in the maintenance, repair, and operations business. Additionally, the service business backed by a major national brand, as in the acquisition of the commercial business coming from Interline, could build brand loyalty and keep consumers returning to a trusted source, something that could be hard to duplicate by a new entrant.
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