The housing market has rebounded sharply since the financial crisis in 2008, and The Home Depot (HD 1.11%) and Lowe's Companies (LOW 0.07%) have both taken full advantage of the new surge in housing. Between do-it-yourselfers and professional builders, the materials and assistance that both retailers offer has never been more valuable to a large audience of customers, and many see housing and construction continuing to boom for the foreseeable future. With that in mind, investors looking at both stocks want to know which one they should consider more closely. Let's compare Home Depot and Lowe's on several important measures to see which one looks more favorable.

Image source: Home Depot.

Valuation and stock performance

Lowe's and Home Depot have sometimes moved in lockstep with each other, but over shorter periods of time, their performance can differ. Lately, Home Depot has had the edge over Lowe's, with total returns of 11% for Home Depot outpacing Lowe's 4% rise since Sept. 2015.

In terms of simple valuations, which stock looks more attractive depends on how you want to look at the current situation. When you look at trailing earnings multiples, Home Depot looks slightly cheaper, trading at 21 times earnings compared to a multiple of 23 for Lowe's.

Yet when you build in near-term future growth, valuations based on forward earnings lead you to the opposite conclusion. Home Depot has a forward multiple of 18, but Lowe's weighs in at just 15 times forward earnings. Given the mixed showing, it's hard to distinguish Lowe's and Home Depot clearly on a valuation basis.


Dividend investors count on high yields and growing payouts for the stocks they like best, and neither Home Depot nor Lowe's stands out particularly on all of those fronts. Right now, Home Depot has a slight lead in terms of its current payout, paying a 2.1% dividend yield compared to Lowe's 1.95% yield. That gap is less than it has been in the past, and it's fairly close to the overall average dividend yield for major market benchmarks like the S&P 500. Both stocks have similar earnings payout ratios, suggesting an equal ability to consider increases in the future.

Both companies have worked hard to boost their payouts, however. Home Depot's most recent dividend increase added 17% to its quarterly payout, while Lowe's recently weighed in with an even more impressive 25% boost to its payout. Lowe's has the added status of being a member of the elite Dividend Aristocrats list, with more than 50 years of consistent, consecutive annual dividend increases. Based on that front, Lowe's might eke out a slight advantage over Home Depot, but both stocks look quite similar in terms of dividends overall.

Growth and fundamental prospects

Both Home Depot and Lowe's have posted solid earnings recently. In its most recent report, Home Depot saw revenue climb 7% on comparable-store sales growth of 5%, and that pushed net income and earnings per share up even more strongly. Traffic and average spending both rose, and Home Depot did a good job of keeping operating expenses in check in order to get more of its sales to fall down to the bottom line. Looking forward, Home Depot continues to go after embracing both do-it-yourselfers and professional contractors, with efforts to capture more business in maintenance and repair. Executives are excited about the health of the industry and think Home Depot will keep getting more than its share of industry growth.

For Lowe's, recent performance hasn't been quite as strong, but the retailer is still doing well. In its second-quarter report, Lowe's said that revenue climbed 5%, producing a 4% rise in net income that helped send earnings per share up 9%. Comparable sales increases were weaker than Home Depot at just 2%, but Lowe's believes that it's well positioned to take advantage of even more favorable conditions for the home improvement industry later in the year. With the acquisition of Canada's RONA, Lowe's is working to build more of an international presence, and that could help bolster growth over the long run.

Growth prospects for Home Depot and Lowe's seem similar, but Home Depot has a longer history of executing well and producing better share-price returns. Absent a more compelling reason to choose between the two, Home Depot looks like the better buy based on its past success, but both stocks are likely to thrive as long as housing keeps doing well.