Market Commentary: 1 Dividend Stock To Hold Forever
Farming stocks. It’s not the first place most investors think of when scouting for opportunities but in the agricultural world we discovered a stock that has all the hallmarks of being a great hold for the long term, Tractor Supply Company.
Unlike the high-flying financial technology stocks that grabbed headlines after posting record-breaking revenue growth rates during the 2020-21 era only to plummet back to earth in 2022-23, Tractor Supply has plodded steadily through the muck to report top line growth year after year through thick and thin.
So is it a buy?
Key Points
- Tractor Supply Company has been growing steadily for years and has almost doubled its revenues over the past 5 years.
- It has also posted stellar bottom line numbers, with operating income tripling over the past decade.
- Analyst upgrades place fair value at $275 per share, almost 25% above the current share price.
Why Buy Tractor Supply?
Over the past 5 years, Tractor Supply has almost doubled revenues from $7.9 billion in fiscal year 2018 to $14.2 billion in 2022.
Just look at the steady revenue growth rates reported year over year:
- 2018: 9.0%
- 2019: 5.6%
- 2020: 27.2%
- 2021: 19.9%
- 2022: 11.6%
It gets even better. We went back a full decade, and guess what?
Every single year Tractor Supply Company posted revenue growth year-over-year. That’s the kind of consistency you like to see if you’re planning to attach yourself to a stock long-term, but it’s not the only reason to buy shares.
In addition to attractive top line sales each year, TSCO has also posted stellar bottom line numbers. Operating income has virtually tripled over the past decade from $514 million in 2013 to $1.4 billion in 2022.
But wait, there’s more.
Tractor Supply Dividend
If solid financials weren’t enough to whet your appetite, the company’s dividend might. For 13 years, management has been raising the dividend and still has a payout ratio of just 38%, suggesting the 1.92% yield has ample room to grow and can be trusted for the foreseeable future.
This is the type of play that attracts a conservative-minded investor who will be excited by recent analyst upgrades that peg fair value at $275 per share, almost 25% above where the share price currently sits. And moreover, they can trust that the demand for Tractor Supply products – livestock feed, pest control, and pet food – isn’t going to abate anytime soon.
Another tailwind supporting a bright future is that management has guided comp store sales to rise by 3.5%-5.5% this year.
Wrap-up
Putting it all together, you’ve got accelerating revenue growth, high returns on invested capital, consecutive dividend hikes for 13 years, analyst upgrades, good profitability, and steady cash flows. That’s the type of recipe you like to see for long-term success.
