Back to top

Image: Bigstock

Tractor Supply (TSCO) Cheers Investors With a Dividend Hike

Read MoreHide Full Article

Tractor Supply Company (TSCO - Free Report) cheered investors by enhancing shareholder returns at a time when most companies are suspending dividends and share repurchases due to the hardships posed by the coronavirus outbreak. The company announced the 10th successive quarterly dividend hike. It will now pay out a dividend of 40 cents per share, suggesting a 14.3% rise from the prior rate of 35 cents. The increased dividend will be paid out on Sep 9 to shareholders of record as of Aug 24, 2020.

The latest dividend hike brings its annualized dividend to $1.40 per share versus the prior rate of $1.36. Notably, the company has a five-year annualized dividend growth rate of 13.7%, reflecting dividend increases for five consecutive years. Based on its share price of $148.10 on Aug 7, Tractor Supply currently has a dividend yield of 0.9%. Moreover, the company’s current dividend payout ratio is 23.9%.

Dividend payouts are enticing to investors and Tractor Supply is committed to boosting shareholders’ wealth. In 2019, the company paid out $162 million of dividends to shareholders. Also, it paid out dividends of $40.9 million in the first-quarter 2020.

The latest hike also reflects Tractor Supply’s solid cash position that is used to return value to shareholders (through higher dividends and regular buybacks) as well as reinvesting in the business. With an annual free cash flow return on investment of 29.6%, ahead of the industry’s 9.5%, the increased dividend is likely to be sustainable. The company recorded a free cash flow of $597 million in 2019, up 42.7% from the prior year.

Stock Soars in 3 Months

Robust online business along witha sudden rise in demand for its products stemming from the COVID-19 situation and store expansion strategy positions it well for the future. We note that shares of the company have advanced 35.7% in the past three months compared with the industry’s growth of 20.4%.

The stock has also comfortably outperformed the Retail-Wholesale sector and the S&P 500 index, which have gained 22.3% and 13.9%, respectively, in the past three months. Further, the stock is hovering close to its 52-week high of $154.48.

Given these dynamics, Tractor Supply, with a long-term earnings growth rate of 12.8%, is likely to outperform the 52-week-high mark in the near term.

Sound Fundamentals

This Zacks Rank #3 (Hold) company has been witnessing continued demand across its product categories, channels and geographic regions. Moreover, its online business is performing well, driven by higher demand, as customers are opting for the newly launched contactless curbside delivery as well as buy online, pickup at store options. Also, its redesigned e-commerce website along with a new mobile application is likely to aid online growth.

Further, it is on track to build on Tractor Supply’s Out Here lifestyle assortment and convenient shopping format to gain new customers and market share. Additionally, the company launched the Field Activity Support Team (“FAST”) and is implementing various technology and service enhancements across the enterprise. It is also in the initial phase of transforming its side lots and mature stores to improve space productivity, bringing the latest merchandising strategies to life and advancing efforts to remain nationally strong and locally relevant.

For the third quarter, management expects net sales of $2.30-$2.40 billion with comps growth of 12-18%. Moreover, net income is likely to be $136-$162 million, indicating earnings per share of $1.15-$1.35.

Summing Up

Despite uncertain COVID-19 impacts, Tractor Supply’s impressive fundamentals and strong footing in the industry along with a solid portfolio make it a favored stock. It further draws investor attention through its regular dividend payouts and commitment to enhance shareholder returns.

Stocks to Consider

Dollar General Corporation (DG - Free Report) has a long-term earnings growth rate of 12.5% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Best Buy (BBY - Free Report) , also a Zacks Rank #2 stock, has a long-term earnings growth rate of 8.2%.

Dollar Tree (DLTR - Free Report) has a long-term earnings growth rate of 9.7%. Currently, it carries a Zacks Rank #2.

The Hottest Tech Mega-Trend of All

Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Published in