D.R. Horton (DHI) raises dividend by 25%, but is still a risky investment proposition.

dhi

D.R. Horton’s (NYSE: DHI) dividend was increased by 25% with an overall yield under that of the S&P 500 Index at 1.36%. D.R. Horton is the largest home builder in the country and is engaged primarily in the construction and sale of single-family homes. Its homes are generally in the mid-range arena with square footage from 1,000 to 4,000.

In general, D.R. Horton’s homes are priced more moderately, some as low as $100,000 for its Express brand. The builder usually tops out at the million dollar price mark (Emerald brand). The firm sold more than 36,000 homes last year at an average price point of just under $300,000. The homebuilder is also very diversified with a national presence. The company also posted Q4 earnings.

D.R. Horton earned $0.75 cents a share versus an average analyst estimate of $0.77 cents. On the revenue front, D.R. Horton took in $3.65 billion in sales, up from $3.09 billion last year. This was just below estimates. The company reported that 12,247 homes closed in the previous three months. New home orders increased 3% in the quarter. D.R. Horton offered a rosy view for next year as total revenue is projected to be in the range of $13.4 billion to $13.8 billion. Outside of the earnings miss, the firm also forecast gross margins to be at 20%, versus analysts estimates of 21%.

D.R. Horton currently ranks 32nd in yield within the large cap industrial category. D.R. Horton has maintained a solid three-year growth rate of dividends of 29.4 percent. The quarterly dividend for the December payment will be $0.10 versus the prior year rate of $0.08 per share. D.R. Horton Inc. does not qualify as a new member of our Top 100 Dividend Stocks (see below).

The dividend will be paid at the new higher rate on December 12, 2016, to shareholders of record at close of business on November 28, 2016. D.R. Horton is currently priced at $29.37. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
11/28/2016 0.1
8/4/2016 0.08
5/11/2016 0.08
2/3/2016 0.08
11/25/2015 0.08
8/5/2015 0.063
5/13/2015 0.063
2/4/2015 0.063
11/26/2014 0.063
8/6/2014 0.063
5/13/2014 0.038
2/5/2014 0.038
12/13/2012 0.15
11/29/2012 0.037
8/9/2012 0.038
5/4/2012 0.038
2/8/2012 0.038
11/30/2011 0.038
8/10/2011 0.038
5/10/2011 0.038
2/8/2011 0.038
11/22/2010 0.038
8/12/2010 0.038
5/12/2010 0.038
2/11/2010 0.038

Ranking of D.R. Horton Inc. is based upon our five key criteria, which include; 

Category Value Score
Dividend Yield 1.36% 355
Dividend Growth (3-6 year avg) 24.3% 60
Forward P/E 10.37  29
S&P Financial Rating BBB- 160
Beta 1.40 225
Total Score   859

Additional Information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
1.36% 29.4% 19.2% 32.55 0.90 0.38 1.31 0.16% 1.36%

 

Positives;

  • D.R. Horton maintains a 3 year dividend growth rate of 29.4%.
  • D.R. Horton maintains a credit rating of BBB-. This is investment grade.
  • D.R. Horton’s forward P/E ratio is just over 10, below that of the market.
  • D.R. Horton’s current dividend yield (1.36%) is at the top of it’s five-year average historical dividend yield.

Negatives;

  • D.R. Horton’s dividend yield is below that of the S&P 500 Index.
  • D.R. Horton is trading at a higher than average price/sales (P/S) basis.
  • D.R. Horton has paid out a dividend consecutively for the past 3 years.
  • D.R. Horton maintains a beta of 1.40, higher than the average company.

Latest Earnings & Overall Analysis:

D.R. Horton remains our country’s top builder.  It sells homes in 78 markets across 26 states, the highest in the industry. However, D.R. Horton faces substantial competition from other builders. The housing industry is very fragmented. There are over 20 publicly traded housing companies and hundreds more of private companies. The firm’s advantage though is its size and its breadth of product mix.

It is one of the better firms competing for  the millennial generation. The group, with ages between 18 and 34, will become the largest purchases of homes in the next decade. A recent survey by the Zillow Group found that half of all buyers of homes in the U.S. are under age 36. This was no doubt why D.R. Horton launched Express Homes for entry-level buyers two years ago. And the divisions’ success has been above expectations.

Although we feel that D.R. Horton, along with Toll Brothers, are two of the best of breed homebuilders, its yield is well below the market as a whole. The firm has only paid a dividend for three years now and any downturn in the housing markets could jeopardize the dividend payment. Additionally, the stock maintains a high beta while the price/sales (P/S) is at an elevated ratio. Based on these factors, D.R. Horton does not yet qualify as a member of our  Top 100 Dividend Stocks.

D.R. Horton Inc. Dividend Yield Chart (Click to enlarge)

dhi3

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

Further information on dividend investing and evaluating dividend growth candidates can be found at http://seekingalpha.com/author/timothy-mcintosh/articles

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