With so many in the U.S. forced to stay at home because of the coronavirus crisis, more people have been sizing up their surroundings and noticing improvements are needed. The beneficiaries of that trend have been home improvement companies, like Home Depot (NYSE:HD) and Sherwin-Williams (NYSE:SHW), which are considered essential businesses and thus are still operating.

Home Depot is a big-box home improvement store, and Sherwin-Williams is one of the largest paint and coatings companies in the world. Both are big suppliers in the do-it-yourself market. They are solid companies and have continued to do business during the health crisis. Their investors have benefitted because their stocks haven't been hit as hard as the broader market and their dividends appear to be safe.

Overall, they're both good investment choices, but one is much better from a dividend point of view. For investors who plan to own stock in a company over the long term, that's a big consideration.

Man doing a home improvement project under his dog's watchful eye.

Image source: Getty Images.

Home Depot rewarded investors last quarter

Home Depot will report first-quarter earnings on Tuesday, May 19, and the stock has been on the upswing lately, up about 8.4% this month. The analysts' consensus estimate is for revenue to be $27.23 billion, an increase of 3.2% over the year-ago quarter. Expectations for quarterly earnings are $2.24 per share, a year-over-year decrease of 1.3%.

Dividend payments for the quarter totaled approximately $6.4 billion, from projected cash flow from operations of approximately $13.5 billion. The company pays out 48.34% of its free cash flow as dividends.

Besides doing steady business, Home Depot is a longtime dividend payer that has raised its payout annually for 11 years. On the Feb. 25 fourth-quarter 2019 earnings conference call, CFO Richard McPhail announced the latest dividend increase, amounting to a 10% boost.The current 2.61% dividend yield is pretty great in a world where savings interest rates are at record lows. Annually, Home Depot pays a dividend of $6 per share.

Sherwin-Williams dividend is reliable, but small

Sherwin-Williams is one of the market's most reliable dividend payers, having raised payouts annually for 41 straight years.

On April 29, Sherwin-Williams reported first-quarter 2020 earnings of $4.08 per share, surprising Wall Street, where the consensus was for $3.94 per share. Year over year, sales increased 2.6% to $4.15 billion, and diluted net income per share increased to $3.46 per share from $2.62.

North American stores registered first-quarter same-store sales that were up 7.4% year over year, thanks to the do-it-yourself market. The company expects demand from other markets to slowly recover as consumers are more willing to allow contractors into their homes and construction picks up.

But sales guidance for the year was revised downward. On the earnings conference call, CFO Allen Mistysyn said:

If economic conditions begin returning to normal in the third quarter 2020 and continue improving through the fourth quarter, we anticipate full-year net sales to be flat to down a low-single-digit percentage. If economic conditions do not materially improve until the first quarter 2021, we anticipate full-year 2020 net sales to decrease by a mid- to high-single-digit percentage. This revised full-year 2020 sales guidance is compared to our previous full-year guidance of an increase of 2% to 4%. 

Mistysyn added: "In the first quarter, we repurchased 1.7 million shares of our company's stock and increased our quarterly dividend by 18.6% to $1.34 per share. We are committed to maintaining this dividend increase through the rest of 2020."

That gives Sherwin-Williams an annual dividend of $5.36 per share, with a yield of 1%. The company funds its dividend using 18.6% of free cash flow.

What does this mean for investors?

Both Home Depot and Sherwin-Williams have proved their resilience during the COVID-19 pandemic, and they are likely to continue showing strength into the recovery and beyond. They are well-run companies, meeting financial obligations, generating free cash flow, and paying increasing dividends over multiple years.

They pay close to the same dollar amount in annual dividends per share. But Home Depot's share price stands around $229, and Sherwin-Williams' is roughly $536. With the same amount of money, an investor could buy roughly 2.3 times as many shares of Home Depot than Sherwin-Williams, immediately resulting in more dividend income for the Home Depot investor.

Then, consider the Home Depot payout of 48.3% of free cash flow versus Sherwin-Williams' 18.6%. While both companies routinely raise the dividend, the yield for Home Depot is 2.62% versus Sherwin-Williams' 1% yield. Also, Home Depot is raising its dividend at a similar rate to Sherwin-Williams but from a higher base amount. Doing that consistently puts more distance between their payouts.

Both are reliable dividend payers in a difficult retail environment, but if you are a long-term investor looking for the better dividend play, Home Depot wins hands down.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.