Home Depot (HD 0.87%) shareholders could see a head-turning raise in just a few days. The retailing giant will announce fourth-quarter results on Tuesday, Feb. 22, that include strong sales growth even compared to surging demand a year ago.

The financial picture should be bright, too, despite rising costs. In fact, impressive cash flow and profitability could convince management to issue another double-digit boost in Home Depot's dividend.

Let's take a closer look.

Two people renovating a house.

Image source: Getty Images.

Sales trends

Home Depot entered Q4 with solid momentum. Comparable-store sales rose 6% through September even after soaring 24% a year earlier.

That success has investors predicting more good news ahead, with sales rising about 8% in Q4 to $34.8 billion. Reaching that result would push Home Depot above $150 billion for the full 2021 year, just four years after achieving its first $100 billion fiscal year.

Risks to the growth outlook include supply chain challenges, labor staffing issues, and trouble passing along higher prices. It's also possible that rival Lowe's (NYSE: LOW) won market share in key niches like the professional contractor space. Yet Home Depot avoided these problems through most of 2021 and Tuesday's report should show more progress along that score.

Cash flow and margins

There's no shortage of pressures on the financial front, either. Home Depot likely paid more to staff its stores and secured the right merchandise in Q4. These challenges might push gross profit margin lower, as they did last quarter.

But investors are still looking for earnings to jump 20% this quarter. Watch operating margin for signs of struggles in passing along those rising costs. That figure has been sitting at nearly 15% of sales compared to 12% of sales for Lowe's. It might drop slightly yet remain high enough to power significant profit growth for the business.

Home Depot aims to send a full 55% of annual earnings back to shareholders in the form of dividends, compared to Lowe's more conservative 35% target. That's another reason why investors could be in for a large dividend hike as the chain wraps up a record year for profits.

The new outlook

A year ago, Home Depot announced a 10% dividend increase after earnings rose 14% to $12.9 billion. Operating income has been rising much faster through most of 2021, though, and profits should jump by nearly 30% for the full year. Look for a divided increase of well above 10% in that case.

Some of those annual earnings gains are tied to price surges for construction materials, which might not last. And Home Depot is currently handling lower customer traffic compared to last year, giving management perhaps less confidence as it projects into 2022. Heading into the report, most investors are looking for revenue in 2022 to rise just 2%, in fact.

A slowdown is to be expected following two consecutive years of surging sales results, though. And Home Depot continues to lead the industry in key financial metrics like cash flow, profitability, and returns on invested capital. These wins should be enough to keep earnings, and the dividend, moving significantly higher in 2022.