Exchange-traded funds (ETFs) tend to hold a lot of stocks, often 100 or more. That makes them very diversified investments, which helps reduce risk.

Despite their vast holdings, Home Depot (HD 2.02%) is a very popular stock among several of the top dividend ETFs. It's in the top ten holdings of Vanguard Dividend Appreciation ETF (VIG 1.69%), Vanguard High Dividend Yield ETF (VYM 1.51%), and Schwab U.S. Dividend Equity ETF (SCHD 1.37%). Here's a look at why Home Depot is so popular among these top ETFs.

A popular holding

Vanguard Dividend Appreciation ETF tracks an index, the S&P U.S. Dividend Growers Index, which focuses on large-cap stocks with a record of growing their dividends. That index holds over 330 stocks, which the ETF mirrors. One of the fund's top holdings is Home Depot, ranking ninth at 2.1% of its assets.

Vanguard High Dividend Yield ETF is another Vanguard-managed ETF focused on dividend stocks. This ETF tracks the performance of the FTSE High Dividend Yield Index, which measures the return of stocks with high dividend yields. Currently, the fund has a 2.5% dividend yield, which is more than double the S&P 500's 1.2% and higher than the Vanguard Dividend Appreciation ETF's 1.6%.

That fund holds an even larger number of stocks, with more than 535. Despite its massive number of holdings, Home Depot has risen toward the top. It's the fund's fourth largest holding, at 2.2% of its assets.

Finally, we come to the Schwab U.S. Dividend Equity ETF. This ETF has a more concentrated strategy. It tracks the Dow Jones U.S. Dividend 100 Index, which measures the performance of 100 high-yielding dividend stocks with a record of consistently paying dividends. It selects stocks based on their relative financial strength compared with their peers. In essence, these are the 100 highest quality, high-yield dividend stocks. This fund has an even higher yield of 3.3% over the past 12 months.

Home Depot is in this more elite group of dividend stocks. It ranks as this fund's third largest holding, at 4.4% of its assets.

Why dividend ETFs like Home Depot

Home Depot checks all the boxes for these dividend ETFs. The home-improvement retailer offers a higher-yielding dividend of 2.2%, making it a good fit for the more yield-focused Vanguard High Dividend Yield ETF and Schwab U.S. Dividend Equity ETF.

The company also has an excellent record of paying dividends. It has made over 150 consecutive quarterly payments. Meanwhile, it has increased its dividend for 15 straight years, including by 7.7% earlier this year.

Home Depot is in a strong position to continue paying a stable and growing dividend. The company has generated over $15 billion in net cash from operating activities through the first nine months of this year, more than double its dividend outlay of $6.7 billion. It used that excess cash to fund capital expenditures to grow its store footprint and maintain a strong balance sheet, with its A-rating credit. The company's financial flexibility allowed it to buy SRS Distribution in a $18.3 billion deal earlier this year.

That acquisition added $50 billion to the company's already massive market opportunity, which is now worth over $1 trillion. With its current market share estimated at 15%, Home Depot has a lot of growth ahead. The company can continue to increase sales at its existing stores and expand its retail footprint to capture a larger slice of this market. That should enable the company to continue growing its revenue and earnings, which should allow it to keep pushing its dividend payment higher.

Home Depot is a top dividend stock

Home Depot is one of the top holdings in several leading dividend ETFs. That's because the home improvement retailer pays a steadily increasing higher-yielding dividend. It also backs its payout with a rock-solid financial profile. Those features make Home Depot a great dividend stock to own, whether as part of an ETF investment or as an individual holding in your portfolio.