Home Depot (HD 1.62%) has been experiencing a multiyear slowdown. Its latest earnings report and commentary from the earnings call suggest that Home Depot will not see a recovery in the housing market or home improvement projects anytime soon.

Here's why the retailer is a useful barometer for consumer spending and the housing market and why Home Depot, despite being in a cyclical slowdown, is still a dividend stock that is worth buying now.

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Home Depot's growth has ground to a halt

With a market cap of more than $390 billion, Home Depot is one of the most valuable retail companies in the world. However, unlike other massive retailers like Walmart or Costco Wholesale, Home Depot is unique because it caters to consumers, professional customers, and contractors. Given the relationship between home improvement spending and the housing market, Home Depot can also provide a valuable gauge of the health of consumer spending across discretionary categories.

Home Depot has been slowing for a variety of reasons. The COVID-19 pandemic pulled forward sales as consumers ramped up spending on do-it-yourself projects. Then came supply chain issues, inflation, and rising interest rates.

Relatively high mortgage interest rates have contributed to low existing home sales and relatively unaffordable housing -- which slowed Home Depot's performance.

But this quarter, Home Depot broke a two-year streak of declining same-store sales -- a positive sign that the worst of the slowdown may be over. The bad news is that Home Depot provided a bleak outlook for fiscal 2025 earnings.

A recovery is not around the corner

Home Depot expects comparable sales growth of just 1% in fiscal 2025 and 2.8% total sales growth, driven partly by the opening of approximately 13 new stores. Diluted earnings per share (EPS) are expected to decline by 3%, with adjusted diluted EPS down 2%. Operating margins are expected to be 13%, with adjusted operating margins of 13.4%.

As you can see in the following chart, this forecast would give Home Depot its lowest operating margin in more than eight years, while its revenue and earnings have been flatlining or slightly declining for more than two years.

HD Revenue (TTM) data by YCharts

Consumer spending has so far held fast

On the earnings call, Home Depot management provided useful insights into the health of the consumer and the housing market.

Richard McPhail, Home Depot CFO, said the following on the call:

As we look ahead to fiscal 2025, we expect the underlying momentum in the business that we saw in the back half of 2024 to continue into 2025. However, we are not assuming any meaningful changes to the macroeconomic environment. We expect our consumer will remain healthy. We are not assuming a change in the rate environment nor improvements in housing turnover. As a result, we would expect continued pressure on larger remodeling projects.

Ted Decker, Home Depot CEO, said the following in response to an analyst question on the housing market and mortgage rates:

At this point, while we've seen a little life in turnover in Q4, we're not expecting meaningful increase off that 40-year low. We've likely reached the bottom of housing turnover at about 3% of units, but we're not expecting a big rebound nor significant increases in new housing starts. However, if you just step back, I mean, if you look at our customer, they remain very healthy. So our customer is very healthy. We look at our customer today, we think about $110,000 average income. Those incomes have been growing. We've talked about the increase in home equity values, up 50% since the end of '19, and then wealth effect through the stock market and other investments. So our customer is very healthy. And as you say, if they're staying in their homes longer, they will take on larger remodeling projects as opposed to moving, those that are locked into lower interest rates or just not wanting to get mortgages with the higher rates. But we're not anticipating a large decrease in mortgage rates. It will be more an issue of consumers getting used to these higher rates.

In sum, consumers have been impressively resilient, even when facing higher interest rates. But the housing market has reached a noteworthy slowdown, which is having ripple effects to home improvement.

The wealth effect is also worth pointing out. As Home Depot's CEO said, home equity values are up. Because of that, along with a strong period in the stock market, investors are generally wealthier. The problem is that folks who haven't benefited from those trends are even more strained -- making goods, services, and especially big-ticket items like a home or renovation project more expensive.

Home Depot is still worth buying and holding

Home Depot's weak guidance and management's commentary on the earnings call may lead some investors to run for the exits on Home Depot stock. But glass-half-full investors will appreciate how honest management was on the call, choosing to tell the situation how it is rather than overpromising that a recovery is near.

As the undisputed industry leader in the U.S. home improvement industry (with stores across Canada, Mexico, and other countries as well), Home Depot is well positioned to endure the current slowdown. It sports 16 consecutive years of dividend raises, a 2.3% dividend yield, and a reasonable (but not cheap) valuation.

Add it all up, and Home Depot is still a solid long-term buy, even if the business doesn't return to growth for at least another year.