Home Depot ( NYSE: HD) has had a fantastic run so far on the exchanges. The stock is up 133% compared with a 52% return in the S&P 500 over the past 5 years.
One reason for this spectacular run could be the generous dividend and buyback program. But has it been a bit too generous?
As can be seen the past 4 years have generated $36.76 bn in FCF. However, stock repurchases and dividends amounted to almost $47.19 bn i.e. a shortfall of almost $10.43 bn. While the FCF grew 34%, the buybacks and dividends grew 46%. This was financed primarily by debt issuances of $10.57 bn. Already the buybacks have caused the stockholders equity to turn negative and raise the debt almost 100% over the past 4 years.
While this strategy may give a short term boost to the share price, its long term implications are quite detrimental to the company. Could there be another Macy's in the making?
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