Focusing On Growth In High-Quality Dividend Growth: Comparing UPS And Home Depot

Core Insights - The article emphasizes the importance of both growth and valuation in identifying investment opportunities, particularly focusing on high-quality dividend growth stocks [3][22] - Companies like United Parcel Service (UPS) and Home Depot (HD) are highlighted as strong candidates for investment, with a focus on their growth potential and valuation metrics [22] Valuation Analysis - Fair value estimation is conducted using historical and future fair value calculations, comparing current metrics to historical averages [4][5] - The analysis indicates that Salesforce, Inc. (CRM) and Bristol Myers Squibb Company (BMY) are attractive based on both historical and future fair value perspectives [5][22] - A bubble plot is utilized to visualize stocks trading at discounts to both historical and future fair values, identifying potential investment candidates [5] Growth Analysis - The article discusses the challenges of predicting growth and utilizes various metrics, including past EBITDA growth and dividend growth, to estimate future growth [6][8] - Companies like Mastercard, Intuit, and Visa are noted for their high growth potential, while UPS and HD are compared for their growth characteristics [8][12] - The analysis of Return on Invested Capital (ROIC) suggests that both UPS and HD have high ROICs, with HD appearing more attractive in sustaining growth [11][12] Comparative Analysis - The article compares UPS and HD based on growth expectations, with HD showing higher recent growth estimates compared to UPS [14][15] - Future earnings growth projections indicate that HD is more attractive than UPS, although both companies show solid revenue growth potential [15][16] - Payout ratios are examined, revealing that HD has a more favorable payout ratio compared to UPS, which is approaching 100% [17] Debt and Equity Considerations - The net debt positions of both companies are analyzed, with HD showing an increase in net debt over time while UPS maintains a stable net debt position [18][19] - The article highlights the importance of share count stability, noting that HD has decreased shares outstanding while UPS has maintained a consistent share count [19] Conclusion - The article concludes that both UPS and HD are excellent investment candidates, with UPS being attractively valued and HD showing strong growth characteristics [22] - The author expresses a preference for relying on valuation while incorporating growth into the investment decision-making process [22]