Low Store People
Image source: Lowe's.

The home-improvement retail industry has boomed in recent years, riding the recovery in the housing market to new heights. Dividend investors have also gotten their share of profits from big-box retail rivals Home Depot (NYSE:HD) and Lowe's (NYSE:LOW) as well as paint-store specialist Sherwin-Williams (NYSE:SHW). Yet many investors want to know which of these stocks is the best bet from a dividend perspective. Below, we'll compare the three companies on a variety of different measures that are important to dividend investors.

Yield
The simplest way to evaluate dividend stocks is by current yield, and doing so here reveals some differences among the three contenders. Home Depot leads the way with a yield of nearly 2%, and Lowe's trails with a 1.6% yield. Sherwin-Williams pulls up the rear with just a 1.1% dividend yield.

These yields don't look very good, but bear in mind that all three stocks have seen their share prices soar in recent years. As we'll see below, it can be hard for a dividend stock to keep its yield high if its shares rise in value too quickly, as it can hide the impact of what most would otherwise consider to be extremely healthy growth in payouts.

Growth
All three of these home-improvement stocks have put together a solid history of dividend growth over time. That's important, because a great dividend stock has to go beyond current yield to boost their payouts on a regular basis and give its shareholders a rising income stream.

Over the past 10 years, Lowe's has made the biggest increase in its dividend, going from $0.03 per share to $0.28 per share on a quarterly basis for a gain of 867%. Home Depot has seen a 490% increase from $0.10 to $0.59 per share quarterly, and Sherwin-Williams has been the most conservative, rising from $0.205 to $0.67 per share for a 227% increase.

Longer term, Lowe's also has the longest streak of consecutive annual dividend increases, with 53 years under its belt. That bests fellow Dividend Aristocrat Sherwin-Williams and its 37-year streak, and it easily eclipses Home Depot's shorter six-year boost. By this metric, Lowe's emerges as the clear winner.

Sustainability
Just as important as paying a dividend is being able to keep paying that dividend. Looking at the earnings payout ratio can help on that score by showing what impact a drop in earnings could have on its ability to sustain current dividend levels.

As you might expect, the payout ratios for these three stocks reflect their differences in yield. At 44%, Home Depot pays out the highest percentage of its trailing earnings in dividends, followed closely by Lowe's at 36%. Sherwin-Williams has the lowest payout ratio at just 26%, explaining in part why its yield is so much lower than that of its peers.

All three companies are projected to have substantial earnings growth going into the future, so these low payout ratios give them ample opportunity to raise their dividends to keep pace. Sherwin-Williams in particular has an opportunity to reward its shareholders with a big dividend hike in order to bring it up to speed with Home Depot and Lowe's, but weakness in the non-consumer portion of its business might be holding it back to some extent.

The right dividend stock for you
All three of these home improvement-related stocks have strong dividend components, but the best combination of yield, track record, and future prospects appears to go to Lowe's. Home Depot has the capacity to catch up and surpass its rival if it can keep growing at its current pace, and Sherwin-Williams could make a smart decision to increase its dividend dramatically. But Lowe's has the inside track right now and can continue to benefit its shareholders if it stays on course.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Sherwin-Williams. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.