This Hot Growth Stock Just Raised Its Dividend by 77% (NASDAQ:TSCO)

Key Points
  • Growth for this rural lifestyle retailer was strong through the end of 2021.
  • Profitability is on pace to stay above 10% of sales through 2022.
  • Higher cash returns make this stock a more compelling buy.

Tractor Supply (NASDAQ:TSCO) shareholders have some new reasons to celebrate. The rural lifestyle retailer recently announced surprisingly strong sales trends to close out 2021. And management issued a bullish forecast for 2022 even as it boosted its long-term growth outlook.

Let's take a closer look at the blockbuster earnings update, which came with a head-turning 77% increase to the annual dividend payment.

Customer traffic gains

Investors had high growth expectations heading into the report, but Tractor Supply easily surpassed those predictions. Sales jumped 15% on top of the 31% spike the company notched a year ago. That boost allowed the retailer to outpace its most recent, upgraded, outlook. Revenue landed at $12.73 billion for the year, beating the $12.6 billion forecast from late October. It was the chain's seventh consecutive quarter of double-digit comps growth.

Rising average spending played the biggest role in the growth, with order volume improving at a double-digit percentage rate. But Tractor Supply still notched higher customer traffic compared with booming results in late 2020. “Our resilient and differentiated business model has allowed us to capitalize on the structural consumer trends benefiting our business,” CEO Hal Lawton said in a press release.

Handling those costs

Tractor Supply faced rising costs across its business, just like all its competitors. Price increases combined with high demand for premium products in niches like pet supplies and home maintenance to lift earnings, though. Gross profit margin fell only slightly, down to 12.6% of sales from 13.4% a year ago. Operating income expanded nearly as quickly as sales did, which allowed core profitability to improve to 10.3% of sales from 9.4% of sales a year ago.

TSCO Operating Margin (TTM) Chart

There are many shareholder benefits that flow from that success, including soaring cash returns. Tractor Supply spent $800 million repurchasing shares last year and just approved another $2 billion worth of new buybacks. And the quarterly dividend received its biggest boost yet, rising 77% to $0.92 per share. At $3.68 per share today, the new 1.7% yield now easily outpaces the 1.4% an investor could get from simply owning the broader S&P 500.

Investing in growth

Investors should be just as happy to know that Tractor Supply has all the resources it needs to direct toward extending its growth momentum. New store growth might accelerate from the 80 launches shareholders have seen in each of the past two years, for example. And the retailer is making splashier acquisitions like the recent proposed purchase of Orscheln Farm & Home.

Management sees a brighter long-term future ahead, in part thanks to that extra spending. Sales should grow by about 6% to 7% each year thanks to roughly 4% to 5% annual comparable-store sales gains. Operating margin should be at least 10%, as it was this year, but could be as high as 11% of sales.

These long-term targets imply double-digit earnings growth from here, which is impressive given the booming profit gains shareholders have seen in the past several years. That spike will be padded by rising dividends, too, as Tractor Supply finds more room to reward its investors through higher repurchase spending and a quickly rising dividend payment.

Originally published on