A fast-growing home improvement market is sparking a profit bonanza in the industry. Home Depot (NYSE:HD) and Lowe's (NYSE:LOW) are both enjoying record customer traffic, double-digit earnings growth, and climbing profitability right now.

Lowe's is trailing its larger competitor on these key operating trends, which helps explain why its stock hasn't grown at the same scorching pace as Home Depot's.

Yet Lowe's is keeping up with its rival on the important metric of dividend growth. Since 2011, its payout has surged higher -- from an annual $0.36 per share to the current $1.12 per share mark.

LOW Dividend Chart

LOW Dividend data by YCharts.

While the home improvement retailer may not hike its divided by more than 20% in 2016, as it has in each of the past two years, shareholders can expect a significant boost to Lowe's payout this year.

Improving operations
After all, the business is generating significant operating profits. Over the nine months ended Oct. 30, 2015, Lowe's comparable-store sales were up a solid 5%. CEO Robert Niblock told investors last quarter that the retailer was posting growth across all of its geographic regions and within almost all of its product categories. "I'm pleased that we delivered another solid quarter with comparable sales growth of 4.6%, or 9.7% on a two-year basis," he said.

LOW Revenue (TTM) Chart

LOW Revenue (TTM) data by YCharts.

Earnings are on pace to rise by 23% for the full year, up to $3.32 per share. That's good enough to beat Home Depot's expected 14% profit gain.

Strong cash position
At $3.32 per share of earnings, Lowe's dividend payout ratio works out to a comfortable 34%, or well below its rival's 50% targeted payout. A key factor behind the gap there is that Home Depot is already as big as it wants to get, while Lowe's is still plowing cash into expanding its store footprint.

Low

Image source: Lowe's.

Still, the fact that it is paying less than half of its earnings out in dividends points to long-term growth ahead for income investors.

Meanwhile, Niblock and his executive team have spent $4 billion on stock repurchases in each of the last three fiscal years as dividend payments have ticked up to an $800 million annual pace. The small dividend commitment, relative to Lowe's overall cash returns to shareholders, indicates that the company has plenty of room to hike the payout at -- or even above -- the pace of earnings growth.

Optimistic outlook
A bright outlook for the market is also likely to factor into management's dividend boost announcement this year. Executives last November cited several data points that tell them the industry should keep growing strong. "The forecast for key drivers of the home improvement industry remain conducive for growth at least through 2017," Niblock said in a conference call with analysts.

"Most encouraging this quarter is the desire to invest in home continues to grow," he said, citing the company's latest customer survey. "Respondents are indicating that growth in their home improvement spending is outpacing increases in overall spending," he revealed.

Those survey responses agree with economic data that show that the home improvement industry has grown to over $600 billion from a $400 billion annual pace in 2011. Yet the market is far from its peak $900 billion pace set in 2006:

Pfri

Data source: Federal Reserve Economic Data.

A sharp slowdown in job growth or home price appreciation could reverse that trend, but Lowe's hasn't seen any evidence of that happening, at least as of November.

The company typically announces dividend raises at its annual shareholders meeting, which is often held in May. Look for a significant boost to Lowe's payout to be a major piece of news to come from that meeting this year.

Demitrios Kalogeropoulos owns shares of Home Depot. The Motley Fool recommends Home Depot. 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.