A 20 percent stock divident was approved by Hechinger Co. directors after the company's annual meeting in Landover yesterday.

The move followed shareholders' approval of an increase in authorized shares to 5 million from 3 million and was a notable development for the 68-year-old company - following years of putting profits back into expansion budgets.

The dividend of 20 percent in stock along with 3 cents a share in cash is payable Aug. 24 to holders of record Aug. 1.

The 23-unit home improvement retail chain, which went public in 1972 with an offering of 400,000 shares, declared its first dividends of 4 percent in stock and 3 cents a share in cash last year.

The two brothers-in-law, Chairman Richard England and President John W. Hechinger, who together control about 85 percent of the stock, waived receipt of the dividend.

Hechinger officers said yesterday that May sales were strong following the first quarter ended May 5, during which earnings jumped 57 percent to $863,980 (30 cents a share) on sales of $33.2 million, an increase of 39 percent.

Those dramatic figures reflect an ambitious expanion program launched two years ago when the then-17-unit firm plunged into a 13-store expansion phase with its highly successful do-it-yourself home and garden care and repair merchandising concept.

By the end of this year, the firm will be operating 26 of 30 planned stores through the Washington, Maryland, Virginia and Pennsylvania markets.

Hechinger said that the company plans to continue its growth pattern by opening three to four stores a year. The typical freestanding unit consists of 60,000 square feet under roof and a 20,000-square-foot garden center.

During an interview following the meeting, Hechinger pointed out that the company is satisfied with the results of targeting its growth scenario within a 200-mile radius of the new Landover headquarters, where yesterday's meeting was held.

After all, he pointed out, "Studies indicate that 25 to 33 percent of total regional population is located within that area."

Still, expansion along the Eastern Seaboard is difficult for most retailers who are eyeing that market, he stated. Dense population, reduced availability of land, tough zoning laws, environmental concerns and sewer moratoriums are just some of the problems faced, particularly for a company which invests at least$2 million on a required six acres of land for each unit, Hechinger added.

Hechinger said that these difficulties have prompted the company to cooperate with other retailers, such as K mart Corp. in locating cities.

Among Hechinger's most dramatic current projects is the announced development of a 212,000-square-foot, two-level shopping center on 17th Street NE, to serve a market of about 400,000 people. The site currently houses Hechinger Builders, a home remodeling division, which will be relocated this summer.

Demolition on the Northeast land begins this fall with construction beginning in 1980 for an opening planned in 1981. The developer is Hechinger Enterprises and the center will house a 60,000-square-foot Hechinger store. a 55,000-square-foot Safeway - its largest in the country - and some 60-plus retail stores.

According to Hechinger, the planned center is not a departure from the company's focus, but rather a "dream to see, this private urban renewal on ground that's been in the family since 1924."

The center is being built as part of an Urban Development Action Grant and leasing on the project is being handled by Coldwell Banker.

For the 53-week year ended Feb. 3, the company reported earnings of $3.45 million ($1.22 a share) and increased sales 20 percent to $111 million compared with earnings of $2.34 million (83 cents) on sales of $92.6 million during the previous 52 weeks.

During the year, the company, which employs 2,270 persons, opened four stores - one in Baltimore and three in Pennsylvania.

This year, two Virginia stores will open along with one unit in Glen Burnie, Md. Additional cities include Baltimore, Harrisbury and Richmond.

During his comments, England stated that the company has been successful because "we're catering exclusively to the do-it-yourselfer." Further, he rationalized that one-stop shopping saves gas for the customer and, because of its merchandising concept, Hechinger is "recession resistant. In bad economic times, homeowners are forced to do their own home repairs."

He noted that in 1974, sales increased 22 percent. Said Hechinger of his company, which is ranked fifth largest of its kind in the country: "Our expansion program has transformed the company from a Washington to a major Midatlantic retailer. We're a pioneer in the do-it-yourself home center. CAPTION: Pictures 1 and 2, Shareholder John Crotty, left, asks a question of Chairman Richard England and President John W. Hechinger at Hechinger's meeting yesterday. By Fred Sweets - The Washington Post