5 WaysThe Home Depot, Inc. (HD) Is Crushing The Competition: Lowe’s Companies, Inc. (LOW), Amazon.com, Inc. (AMZN)

3 benefits of generating massive cash flow
Home Depot leads its industry in efficiency as well based on their gross margin. In the current quarter, the company’s gross margin was 34.89%. By comparison, Lowe’s Companies, Inc. (NYSE:LOW) came close at 34.27%, but Walmart at 24.94% and Amazon at 24.13% aren’t playing in the same ballpark. While it’s true that Walmart and Amazon have broader selections, with different margins, this only increases the argument that Home Depot is a category leader. The bottom line is, Amazon.com, Inc. (NASDAQ:AMZN) and Walmart can’t afford to match Home Depot’s focus on the home improvement market.

One thing Home Depot’s industry leading gross margin allows the company to do is generate free cash flow like none of their competitors. In fact, the company generated $0.07 of free cash flow from each dollar of sales in the current quarter. Again Lowe’s came close at $0.05, but Walmart fell behind at $0.03. Unfortunately for Amazon investors, the company’s heavy capital expenditures caused the company to report negative free cash flow during this same timeframe.

Of course, some companies generate huge free cash flow and just sit on it, not so with Home Depot. The company’s 34% increase in their dividend might have been the biggest surprise of all. This far outpaced the 18% increase that Walmart just issued. With Home Depot yielding 2.19%, the stock now compares more favorably with Walmart at 2.57%. Again Lowe’s Companies, Inc. (NYSE:LOW) is left behind with a 1.63% yield, and of course Amazon.com, Inc. (NASDAQ:AMZN) doesn’t have the cash flow to pay a dividend.

This last quarter for Home Depot, Inc. (NYSE:HD) seemed to reaffirm that this is still a growth story. The company may have over 2,200 stores, but with an improving housing market and better jobs outlook this could be just the first of many positive surprises.

The article 5 Ways This Company Is Crushing The Competition originally appeared on Fool.com and is written by Chad Henage.

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