Magic at the Home Depot
My Dad owned Home Depot stock in the nineties and did very well with the investment. My Dad’s name is Bob, and I owe much of my success today to him and my Mom, Anne. Big Bob is not a super affluent guy or anything, but he’s a good man, has the right temperament, and most of all, he understood dividend-paying stocks learning lessons by watching Grandpa Fred. So Dad bought and held some Home Depot stock, and the company did very well in the nineties, splitting multiple times throughout that decade, not to mention paying out a nice dividend along the way. Let’s briefly talk about a split, which is yet another advantage of the Dividend Lifestyle approach to investing.
A stock split means the stock price increased, and then the board of directors voted on and agreed to split the stock for their shareholders, basically saying , “Okay, if the stock was $50 a share a few years ago, and now it’s run up to $100, we’re going to cut it back down to $50, and give every shareholder twice the number of shares they have.” That would be called a two-for-one split. There are three-for-one and five-for-one splits, as well as reverse splits. Let’s keep it simple and say they did a two-for-one split when my Dad owned the stock. Remember, shareholders still have the same amount of money invested in the stock, but they now have twice the shares for half the price per share. The hope then is that the stock climbs back to $100 per share and splits again, creating more and more shares.
The Home Depot stock split happened multiple times throughout the nineties. Not only did the stock price continue to build back up and the stock split again and again, but you’re collecting dividends along the way, which my dad used to reinvest and buy even more shares. If you multiply the two types of returns just as described, the dividend reinvestment plus the stock splits, you end up with a whole lot of total return at the end of that decade. There were thousands of Home Depot employees in the 1980s and 1990s that became millionaires because of this remarkable performance. It was a well-run company, had strong financials, low debt, a great brand, and like Buffet and Munger say, they had an “economic moat around their business.” All ideal characteristics of stocks that work for the Dividend Lifestyle.
Bob’s story was that he started with a modest $10,000 investment in the early nineties and never put another dollar into Home Depot stock, just letting it do its thing. Between 1990 and 1999, Home Depot stock split no less than 7 times, a remarkable ride for buy and hold investors. My Dad’s initial $10,000 investment turned into over $100,000 by the end of the decade, and it was the most simple “set it and forget it” investment ever. My Dad put the money into a high-quality U.S. dividend-paying stock and, as Bob liked to say, “buried it.” I graduated high school in 1998, and my little sister graduated in 2001. Katrina did her undergrad at Florida State, and her entire undergrad education was paid for with the proceeds from that Home Depot stock.
Katrina went on to get her Master’s in education at Rollins College here in Winter Park, Florida. There was even Home Depot stock left over to pay for most of her Master’s. An extraordinary example of the Dividend Lifestyle at it’s finest.
Disclosure: Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Examples are for illustration purpose only and do not represent an actual investment. Dividends are not guaranteed and must be authorized by the company's board of directors. Investments mentioned may not be suitable for all investors. Prior to making any investment decision, you should consult with your financial advisor about your individual situation.