This shareholder-friendly company looks poised to keep on winning over the next five years and beyond.
Tractor Supply (TSCO -1.16%) recently reminded investors of one of the reasons why it’s a great long-term investment for income investors. In February, the rural lifestyle retailer announced it was raising its dividend, marking its 15th year in a row of dividend increases and putting the dividend far higher than it was just a few years ago.
Though the stock has risen sharply in 2024, shares arguably continue to look attractive for investors looking for growing dividend payments over the long haul.
Here are three reasons investors looking for income may want to consider betting on Tractor Supply stock.
1. A solid dividend yield
After announcing a 7% increase to its quarterly dividend earlier this year, the regular payment now amounts to $1.10. This puts total annual payments at $4.40, giving Tractor Supply a dividend yield of more than 1.7% at the time of this writing.
Though 7% may seem like a small increase, some context is in order. This is on top of its astronomical dividend growth in recent years. The company went from paying $1.50 annually in dividends in 2020 to $2.08 in 2021 and then $3.68 in 2022.
Importantly, Tractor Supply’s dividend yield notably stacks up quite well against many other companies. For instance, the S&P 500 and NASDAQ 100 indices have dividend yields of about 1.4% and 0.9% respectively.
2. Strong dividend growth potential
Of course, with short-term Treasury Bill rates currently above 5%, the bar is high when it comes to looking for good income investments. Fortunately, the rural retailer specialist delivers. Not only do Tractor Supply investors get access to the potential appreciation of the underlying stock price (of course, there’s always a risk it goes down, too), but they tap into a dividend likely to continue growing for the foreseeable future, building on its track record of 15 consecutive years of dividend growth.
The primary reason further dividend growth from Tractor Supply in the coming years is almost inevitable is because the company’s payout ratio is low. Paying out only about 41% of its trailing-12-month earnings, there’s plenty of breathing room for the payment and, subsequently, a good reason for Tractor Supply’s board of directors to continue authorizing further increases in the coming years.
3. A good management team
Another key reason dividend investors should love Tractor Supply is the quality of the management team. Tractor Supply CEO Hal Lawton, who joined the company in January of 2020, has helped the retailer’s net sales grow more than 70% and its earnings per share rise more than 200% under his leadership.
Looking ahead, Lawton and his team’s efforts have helped reshape the business for another decade of robust growth. Chief among the company’s recent achievements is its loyalty program called Neighbors Club, which boasts more than 32 million members and represents 70% of its sales. Though the company had this program before Lawton joined the company, it has been significantly revamped several times under his watch.
Lawton also oversaw the company’s acquisition of small-box pet specialty supply retailer Petsense, the addition of garden centers to many of its stores, and the acquisition of 81 stores from Orscheln Farm and Home that are being rebranded to Tractor Supply stores.
Finally, Lawton and chief financial officer Kurt Barton (who joined in 2019) played key roles in ramping up the company’s share repurchase program while also aggressively increasing its dividend payments to shareholders during their time as executives. In addition to the company’s rapid dividend growth over the last five years, total shares outstanding have notably decreased by nearly 11% during this period.
This is to say that Tractor Supply continues to look like a great stock for investors looking for long-term dividend growth and a good chance of meaningful long-term share price appreciation. Though shares aren’t cheap at 25 times earnings, it may prove to be challenging to buy a retailer of this caliber much cheaper. And even if the stock does slide after an investor buys it, they’ll be compensated with quarterly dividends, helping offset some of the pain of volatility.
Of course, there are risks to any investment. For this reason, investors who do decide to buy the stock should consider keeping their investment relatively small as a percentage of their total portfolio.
Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool recommends Tractor Supply. The Motley Fool has a disclosure policy.
