NEW YORK (MarketWatch) — Home Depot Inc., the No. 1 U.S. home-improvement retailer, boosted its dividend and embarked on a big share-buyback plan Tuesday.

It also reported a 32% increase in its fourth-fiscal-quarter profit, boosted by a recovery in the housing market and purchases of such products as generators and lumber in the wake of Hurricane Sandy.

While Home Depot HD, -1.38% joined other retailers, including rival Lowe’s Cos. LOW, -1.37% and retail giant Wal-Mart Stores Inc. WMT, -0.80% , in putting out a disappointing forecast, investors chose to give the company, known for its conservative forecasts, the benefit of the doubt. Shares of Home Depot, a member of the Dow Jones Industrial Average DJIA, +0.13% , jumped 5.8% to $67.62, its biggest percentage gain since May 2009.

Shares of Lowe’s were up 1.8%. See related story: Lowe’s joins cautious chorus.

“While we believe a recovery in housing is underway, GDP growth is expected to be modest, and there are a number of pressures on our customers, including reduced disposable income and continued constraints on credit availability,” Home Depot Chief Executive Frank Blake said during a conference call, adding that private residential fixed investment as a percentage of GDP, while improving, is still well below previous historic lows. “We continue to believe that the path to recovery will resemble a gradual thawing process.”

Bernanke: Economy Expands at Moderate, Uneven Pace

Bolstering the sentiment, data released Tuesday showed-new home sales in January rose at their fastest pace since July 2008, while the annual home price gain was the best in seven years. See related home-price story.

The company raised its dividend by 34% to 39 cents a share and authorized a $17 billion share-repurchase program.

Home Depot’s “momentum continues with a prudent outlook,” said J.P. Morgan analyst Christopher Horvers. “The HD story remains on track with fourth-quarter results demonstrating the power of the model and potential of the business in a more buoyant housing environment.”

Professional shoppers

Sandy, the so-called superstorm, lifted sales by $242 million in the quarter, Chief Financial Officer Carol Tome said, adding that the company expects “a continued tailwind” into 2013.

“ Contractors typically represent about 3% of Home Depot’s customer base — but more than a quarter of its sales. ”

Outside of the storm-hit region, the company said it continued to see a recovery trend in Florida, California and Arizona — among the states hit hardest by the U.S.’s housing-market downturn. “Our results benefited from storm repair, but they also reflected an improving housing market,” CEO Blake said on the call.

In other encouraging signs, sales to its professional customers — that is, contractors — which had lagged consumer sales growth during the market downturn, grew “on par” with sales to rank-and-file shoppers, the CEO said. Sales to smaller-scale contractors also are beginning to register growth. Contractors typically represent about 3% of Home Depot’s customer base — but more than a quarter of its sales.

The company saw double-digit growth in its installation and services operation.

To sustain its momentum, Home Depot, which has outperformed Lowe’s as it benefited from efficiency and customer-service initiatives, has been building out its buy-online-for-store-pickup service. The company said online sales ran at a record pace in the quarter. It also bought a retail analytics firm to help it study customers and steer them toward appropriate merchandise. Read related story on CEO Blake’s maneuvering during the U.S. housing-market downturn.

Suggesting that top U.S. appliance retailer Sears Holdings Corp. US:SHLD is facing growing competition, Home Depot said its expanded appliance offerings have performed well. Struggling electronics chain Best Buy Co. BBY, -0.81% also is expanding in appliances sales.

Customers are spending more

The number of customer transitions during the fourth quarter grew 1.7%, on a comparable basis, while average transaction size rose 5.6%, helped in part by inflation in lumber and copper. Tickets under $50, about one-fifth of U.S. sales, rose 0.3%, while transactions over $900, also 20% of sales, jumped 9%, helped by purchases of generators and appliances, Home Depot’s merchandising chief, Craig Menear, said on the company call.

Looking abroad, the company said its Canadian business posted a fifth straight comparable-store-sales rise, while its Mexican business posted positive same-store sales for a 37th consecutive time.

Profit in the quarter ended Feb. 3 rose to $1.02 billion, or 68 cents a share, from $774 million, or 50 cents, a year earlier. The most recent quarter’s results were helped by a 1-cent favorable adjustment to a previously announced China store-closing charge of 1 cent a share and an extra week in the reporting period that boosted profit by 7 cents a share.

Sales rose 14% to $18.2 billion. Comparable-store sales increased 7%, including a 7.1% gain in the U.S. Analysts surveyed by FactSet were looking for profit of 64 cents a share on sales of $17.7 billion. In comparison, Lowe’s comparable sales were up 1.9%.

For this year, Home Depot sees per-share profit of $3.37 a share on a 2% sales increase. Comparable-store sales are expected to rise about 3%, the company said. Analysts were looking for profit of $3.50 a share. Tome said the company is basing its sales growth assumption on the 2% GDP growth forecast while improving home prices and turnover are expected to add to another 1 percentage of growth.

“This was a solid quarter where the sales growth was excellent despite hard” comparisons, said ISI Group analyst Greg Melich. Similar to Lowe’s, “2013 [guidance] seems conservative, but nods to improving trends.”