Americans love investing in their homes. In the last quarter, in fact, consumers poured cash into home remodels and improvements at an $860 billion annual pace, or just below the $900 billion all-time peak that was set just before the financial crisis began in 2007.

Home Depot (NYSE:HD) has been a key beneficiary of that powerful trend, which helped push its annual revenue to over $100 billion in 2019 from $66 billion a decade earlier. But the retailer has other advantages that, combined with its impressive growth potential, make it an ideal stock for your retirement portfolio.

Let's look at those attractive investment qualities.

A man and a woman using rollers to paint an room blue

Image source: Getty Images.

A flexible formula for winning

The home improvement industry contracted by over 60% from early 2006 to late 2010, a period that contained the depths of the Great Recession. Home Depot was near the center of that financial crisis and saw annual sales and profits dive during that time. Management was even forced to pause dividend increases for several years while rival Lowe's (NYSE:LOW) continued its annual raises and protected its status as a Dividend Aristocrat.

Yet Home Depot's track record for the decade since that pullback shows the resiliency of this market-leading business. Since 2017, the business faced big challenges ranging from major hurricanes to spiking lumber prices. Consumers also shifted far more of their spending online in the past few years. But Home Depot has steadily gained market share despite these competitive and industry-specific challenges, with comparable-store sales rising 4%, 5%, and 7% in 2019, 2018, and 2017, respectively. Lowe's comparable metrics landed at 3%, 2%, and 4%.

Strong finances

Home Depot also boasts unusually strong finances and a sparkling record for capital allocation by its management team. The company routinely generates over $13 billion in annual operating cash, which in the past three years has funded the return of $40 billion to shareholders through stock repurchase spending and a quickly growing dividend. That gushing cash flow allows Home Depot to be more generous than peers in both areas, too. It aims to deliver 55% of annual earnings to investors in dividends compared to Lowe's 35%.

The single number that best captures this financial strength is return on invested capital (ROIC), a favorite Warren Buffett metric. Home Depot's ROIC is near 40%, around double Lowe's result and near the highest among blue-chip stocks on the market.

HD Return on Invested Capital Chart

HD Return on Invested Capital data by YCharts.

The catch

Home Depot isn't a perfect investment, of course. The sharp sales pullback just over a decade ago illustrated how exposed the business is to the cyclical home improvement industry. Revenue and profits are sure to take temporary hits in the future during those unpredictable economic downturns.

It's also a fair knock against the stock to say it isn't a steal today. Investors must pay over two times annual sales for this business compared to 1.4 times for Lowe's and 0.8 times for Costco.

Yet if you're looking for a highly profitable, cash-rich business that can reliably grow through several 10-year periods, Home Depot should be near the top of your retirement portfolio watch list. From market share to capital efficiency to shareholder returns, it is about as close to the full package as investors can hope to get from a single large-cap stock.