One high-quality retailer that may be sneaking up on some investors is Tractor Supply (TSCO). There's a good chance many urban dwellers have never even set foot in the rural lifestyle retailer's stores. But investors shouldn't overlook this growing, profitable business just because they don't shop there. Tractor Supply is becoming a habitual destination for a growing portion of the U.S. population.
Helped by a store count growth, a growing lineup of products at its stores, a successful loyalty program, and a large selection of needs-based products for rural lifestyles, Tractor Supply is simultaneously attracting new customers and keeping existing ones. Importantly for investors, this model translates to a long history of consistent revenue, profit, and dividend growth. The strength of the company's business was most recently demonstrated in Tractor Supply's double-digit dividend increase.
Here's a look at Tractor Supply's business momentum and key details about its dividend.
Late last month, Tractor Supply revealed impressive fourth-quarter results. Revenue for the period, which included an extra week compared to the same quarter last year, rose about 21% year over year. This helped the company cap off an excellent fiscal 2022, with total sales growth of 11.6%. Earnings per share for the year increased even faster, climbing 12.8% to $9.71. Even more, the company's profitable business model enabled Tractor Supply to pay about $410 million of dividend payments to shareholders and repurchase $700 worth of its own shares.
“Tractor Supply had another remarkable year in 2022 as we continued to gain market share and advance our strategic initiatives,” said Tractor Supply CEO Hal Lawton in the company's fourth-quarter earnings release. Some of the company's most important strategic initiatives include its loyalty program, an improved digital experience, store remodels, and the addition of side lots (outside store space) to offer a wider product selection. As seen in Tractor Supply's 2022 financial results, its investments are paying off, helping the company not only grow revenue but also increase profitability.
Strong dividend growth
On the heels of this business momentum, Tractor Supply announced earlier this week that it is increasing its dividend by 12%. Marking the company's 14th consecutive year of dividend increases, the increased payout “demonstrates the Board's confidence in our Life Out Here strategy and strong cash flow generation, as we continue to invest for future growth while returning capital to shareholders,” said Tractor Supply chairman Cynthia Jamison in the company's earnings release, detailing the dividend increase.
The company's quarterly dividend has seen huge growth in recent years, rising from $0.31 in 2019 to $1.03 today, a more than threefold increase in just four years.
Going forward, Tractor Supply will likely be able to continue increasing its dividend over time. Highlighting the company's room for further increases, it paid out only 38% of its earnings in dividends over the last 12 months. Continued earnings growth should support dividend growth, too.
While Tractor Supply's dividend yield of 1.8% today (based on the company's increased dividend rate) may not be mouthwatering, it's quite attractive when considered alongside the stock's reasonable valuation of 24 times earnings and the company's strong fundamentals. This valuation seems fair for a company demonstrating Tractor Supply's resilience and business momentum.
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Originally published on Fool.com
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.