3 reasons why dividend investors should like tractor supply stocks

tractor supply (TSCO -0.18%) recently reminded investors of one of the reasons why it's a great long-term investment for income investors. The rural lifestyle retailer announced a dividend increase in February, marking the 15th consecutive year of increases, and the payout is much higher than it was just a few years ago.

Although the stock price soared in 2024, there is no doubt that the stock remains attractive to investors looking for dividend growth over the long term.

Here are three reasons why income-seeking investors may want to consider betting on Tractor Supply stock.

1. Solid dividend yield

After announcing a 7% increase in its quarterly dividend earlier this year, the regular payout now stands at $1.10. This brings the total annual payout to $4.40 and gives Tractor Supply a dividend yield of over 1.7% as of this writing.

While 7% may seem like a small increase, some context is needed. This is on top of the astronomical dividend growth in recent years. The company paid an annual dividend of $1.50 in 2020, which rose to $2.08 in 2021 and $3.68 in 2022.

Importantly, Tractor Supply's dividend yield is very good compared to many other companies. for example, S&P500 and Nasdaq 100 The index dividend yields are approximately 1.4% and 0.9%, respectively.

2. High dividend growth potential

Of course, with Treasury bill interest rates currently above 5%, the bar is high when it comes to finding high-yield investments. Luckily, the experts at Countryside Retailer have you covered. Investors in Tractor Supply not only have access to potential appreciation in the underlying stock price (of course, there's always the risk that the stock price will decline), but they also have the potential to continue increasing for the foreseeable future, based on their profits. Take advantage of flexible dividends. A track record of increasing dividends for 15 consecutive years.

The main reason why further increases in Tractor Supply's dividend over the next few years are almost inevitable is due to the company's low payout ratio. Although only around 41% of its revenue has been paid out over the past 12 months, there is plenty of room for payouts, so there is plenty of reason for Tractor Supply's board to continue approving further increases over the next few years.

3. Excellent management team

Another key reason dividend investors like Tractor Supply is the quality of its management team. His CEO of Tractor Supply, Hal Lawton, who joined the company in January 2020, said that under his leadership, the company's net sales have increased by more than 70% and earnings per share have increased by more than 200%. contributed to an increase of more than %.

Looking ahead, Lawton and his team's efforts have helped reposition the business for strong growth over the next decade. The most important of the company's recent achievements is a loyalty program called Neighbors Club, which has more than 32 million members and accounts for 70% of its sales. The program existed at the company before Lawton joined the company, but it underwent several significant improvements under his guidance.

Mr. Lawton also oversaw the company's acquisition of small pet specialty supplies retailer PetSense, the addition of garden centers to many of its stores, and the acquisition of 81 stores from Orscheln Farm and Home, which will be rebranded as a tractor supply store. did.

Finally, Mr. Lawton and Chief Financial Officer Kurt Barton (who joined the company in 2019) played a key role in strengthening our stock repurchase program, while also actively paying dividends to shareholders during their executive years. The amount was increased to In addition to the company's rapid dividend growth over the past five years, the total number of shares outstanding has decreased by nearly 11% during this period.

So Tractor Supply remains a good stock for investors looking for long-term dividend growth and the potential for significant stock price appreciation over the long term. At a price-to-earnings ratio of 25 times, it's not cheap, but it may be difficult to buy a retailer of this size at a lower price. Additionally, if the stock price declines after an investor makes a purchase, they will be compensated with quarterly dividends, which can offset some of the pain from volatility.

Of course, any investment has risks. For this reason, investors who decide to purchase stocks should consider keeping the investment a relatively small percentage of their overall portfolio.