Prospective Top-Yielding Equity Opportunity for 2025's Horizon and Beyond
With stocks generally taking a breather in 2025 after a stellar 2024, where the S&P 500 climbed 23% and the tech-heavy Nasdaq Composite skyrocketed nearly 29%, investors should exercise caution when picking new stocks for their portfolios. Many stocks seem expensive at their current valuations, especially tech stocks that benefited from significant multiple expansion.
However, there are still some reasonably priced, high-quality companies worth considering, including rural lifestyle retailer Tractor Supply (TSCO 0.26%). Despite underperforming the S&P 500 in 2024, the stock looks appealing today, especially compared to the broader market amidst the tech sector's correction. Plus, the company delivers a growing dividend.
Navigating a 2024 slowdown
Tractor Supply's projected full-year 2024 comparable-store sales growth of 0% to 1% may raise some eyebrows. Yet, the company faced tough year-over-year growth comparisons due to the COVID-19 shutdowns that boosted goods spending. Tractor Supply surged in those times, increasing its annual sales from $8.3 billion in 2019 to $14.2 billion in 2022.
Robust growth from the past makes posting strong growth rates difficult -- especially when consumer spending patterns normalize.
Leveraging the slowdown for growth opportunities
Tractor Supply's management is well-positioned to recognize the slowdown as temporary. They're utilizing the underperformance of their stock by buying back shares in large quantities. In Q3 2024, they repurchased 0.6 million shares, and they're optimistic about their long-term ambitions. According to their recent investor communication, the company aims for a 6% to 8% annual sales growth over the next five years.
Capitalizing on the growing dividend
Tractor Supply's impressive dividend history is another appeal. The company started dividend payments in 2010 with a quarterly payout of $0.04 per share, which has grown significantly to an impressive $1.10 per share today. Since 2020, the dividend inflation has nearly tripled, increasing from $0.40 to $1.10.
The company's future dividend growth potential, coupled with its meaningful dividend yield of around 1.7%, makes it a superb dividend stock.
Overall, Tractor Supply possesses the characteristics of a great business and an appealing stock, making it a viable investment option for a diversified portfolio. Despite potential risks, such as fierce competition in retail, the company's robust financials and strategic growth initiatives position it well to outpace the market in the long term.
Enrichment Insights:1. Tractor Supply maintains a strong financial position with a current ratio of 1.43 and a return on equity of 50%.2. Analysts anticipate a 6% revenue growth for FY2025, with low-single-digit to mid-single-digit comparable sales growth in the following year due to moderating inflation and normalized consumer spending patterns.3. The company repurchased 357.4 million shares between 2007 and December 2024, totalling around $6.03 billion. They increased their existing share buyback program by $1 billion and currently hold $7.5 billion authorized.4. The Board of Directors increased the dividend by $0.04 to $0.92 per share on a quarterly basis for FY2025. Tractor Supply's payout ratio is currently 42%.5. Tractor Supply demonstrated its ability to outperform the broader Farm & Ranch industry, reportedly posting a robust revenue CAGR of 12% in the past five years, while most retailers struggle.6. The company's future growth initiatives include expanding product lines, enhancing e-commerce capabilities, and leveraging the ongoing trend of rural living.
- Investors should be cautious when picking new stocks in 2025, as many stocks appear overvalued, especially tech stocks that benefited from multiple expansion.
- Tractor Supply's stock may be an appealing investment option in 2025, despite the company's projected full-year 2024 comparable-store sales growth of 0% to 1%.
- One of the characteristics that highlight Tractor Supply as a great investment is its impressive dividend history, with significant dividend growth since 2010.
- As Tractor Supply's management recognizes the temporary slowdown, they are utilizing it by buying back shares in large quantities and aiming for a 6% to 8% annual sales growth over the next five years.
