Top Dividend Growth Stocks — #2 Tractor Supply Company

Coming it at Number Two (#2!) in our “Top 20 Dividend Growth Stocks” is Tractor Supply Company. It’s a rock solid company that has achieved great dividend and free cash flow growth, not to mention market-beating total return. See what it is all about!

Founded in 1938, based in Brentwood, Tennessee, Tractor Supply Company is a rural lifestyle retailer in the United States offering farm and small animal products; hardware, tools, lawn, garden, power equipment, and maintenance products for agricultural and rural use. It runs 1,923 Tractor Supply and Del’s retail stores in 49 states, as well as 182 Petsense stores in 25 states. It also offers its products online. The company markets its products to recreational farmers, and ranchers, as well as tradesmen and small businesses.

Tractor Supply Co (TSCO) is ‘First Class,’ failing only 1 of 5 Dividend System criteria. It has ‘Premier’ status being in the upper percentiles of this month’s stock universe. The company increased dividends for 11 years, making it a Dividend Contender 10+. We consider TSCO to be a Growth stock.

GROWTH:  TSCO’s 5-year average dividend growth rate is 14.4%, slightly above the dividend universe average of 12.4%. Free cash flow has grown at an average rate of 34.1% per year for the last 5 years versus the dividend universe at 8.3%, so TSCO is performing very well.

INCOME: TSCO’s current dividend yield is 1.01%, less than half of the average at 2.65%. 

SAFETY: We use the Dividend Coverage Ratio to measure the dividend’s safety – higher is better. TSCO has a DCR of 5.7 which is very good, more than double the minimum of 2. 

VALUATION: The price at time of analysis was $151.5, which we consider Fairly Priced. A fair price based on historical PE ratio and earnings would be around $152.1. The S&P500’s average PE ratio is 38.42, versus TSCO’s PE ratio of 23.81,  well below the S&P 500 average PE, indicating strong value, but is there a reason for the low PE? Our ‘Value Rating’ for Tractor Supply Co is 3 out of 5.0, meaning that  both PS and PE are indicating fair value, compared to other dividend stocks available.

TIMING: Historical Yield and PE tell us that TSCO has ‘Weak Signal’ Don’t eliminate a stock based on one factor (or lack thereof). 

QUALITY: Our quality formula gives TSCO a ‘Quality Rating’ of 4.1 (out of 5), versus the average of 2.7 for this month’s dividend universe.

TOTAL RETURN: Over the last 15 years, the compound annual growth rate for an investment in Tractor Supply Co was 18.73% per year with dividends reinvested, versus the S&P500 Total Return of around 11% per year for the same time period. As you can see, TSCO is doing better than the market with dividends reinvested.

Compared to all dividend stocks paying 7 years or more of increasing dividends, we rate Tractor Supply Co a ‘A+.’

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