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Home Depot builds investors a buyback dream home

Home Depot employee helps a customer as she shops in the paint department at the store in Miami.
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Home Depot employee helps a customer as she shops in the paint department at the store in Miami.

Home Depot might be the quintessential American stock of this market cycle, exemplifying many of the crucial themes that investors have come to rely on.

The home improvement retailer in the past several years has curtailed its ambitions, refused to expand the chain, defended high profit margins, tallied more sales from its core domestic customers and bought back an enormous portion of its shares.

It's all worked extremely well for Home Depot and its shareholders, who have enjoyed a 240 percent surge in the stock price over the past five years, versus approximately 45 percent for the S&P 500 and 72 percent for the SPDR S&P Retail sector ETF. Tuesday's fourth-quarter earnings report showed all these trends clicking yet again with brisk comparable-store sales growth of 7.1 percent and a per-share earnings increase of 11.4 percent.

Yet in some respects, Home Depot is an exceptional case, demonstrating how rare it is for a company to combine generous buybacks, financial discipline and strong top-line growth.

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