Last update on 2024-06-28

Tractor Supply (TSCO) - Dividend Analysis (Final Score: 7/8)

Tractor Supply (TSCO) achieves a strong dividend score of 7/8, showcasing robust dividend growth, stability, and favorable payout ratios over 20 years.

Short Analysis - Dividend Score: 7

We're running Tractor Supply (TSCO) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Tractor Supply (TSCO) excelled in its dividend performance and stability based on the 8-criteria scoring system with a total score of 7 out of 8. The key highlights include a dividend yield surpassing the industry average, an impressive and steady long-term dividend growth rate exceeding 5%, and a consistently low payout ratio well below the 65% threshold, maintaining a robust balance sheet. Dividends have been comfortably covered by both earnings and cash flow, with marked improvements over two decades. Additionally, the company has consistently increased dividends and engaged in regular stock repurchases, reflecting strong shareholder value commitments. However, it falls short on the 25-year dividend payment mark, having only paid dividends for 14 years.

Insights for Value Investors Seeking Stable Income

Based on Tractor Supply's solid historical performance and financial health indicators, it appears to be an attractive investment for those seeking stable and growing dividends. The company's consistent dividend increases, conservative payout ratio, reliable earnings and cash flow coverage, and regular stock repurchases signify a strong potential for sustained shareholder returns. While it hasn’t hit the 25-year mark for dividends yet, its current trajectory is promising. Therefore, Tractor Supply (TSCO) is worth considering for a long-term investment.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is an important measure for investors as it indicates how much income they can expect from holding a stock.

Tractor Supply (TSCO)'s current dividend yield of 1.6358% exceeds the industry average of 1.48%, making it attractive for income-focused investors. Over the past 20 years, TSCO has demonstrated significant growth in its dividend yield. Notably, in 2010, the yield was just 0.5774% and has since risen steadily. This trend underscores TSCO's strong commitment to returning value to shareholders. Also, the dividend per share has grown from $0.14 in 2010 to $4.12 in 2023, showing a consistent increase. Concurrently, the stock price appreciated from $24.245 in 2010 to $215.03 in 2023. This positive trend in both dividend payments and stock price reflects the company's robust financial health. Thus, a higher than average dividend yield, coupled with a history of increasing dividends, positions TSCO favorably compared to its industry peers.

Average annual Growth Rate higher than 5% in the last 20 years?

Dividend Growth Rate over 20 years. Checks the consistency in dividend increments. A higher growth rate suggests strong financial health and shareholder value appreciation.

Examining Tractor Supply's long-term Dividend Growth Rate, from a 0% value in the early 2000s to astoundingly varied gains in later years, reveals an average annual growth significantly higher than 5%. Several fluctuating years around 50-70% sharply enhance the dataset. The dividend strategy shows a commitment to rewarding shareholders despite inconsistencies, marking a favorable trend. Coupled with a notable average dividend ratio, this indicative growth pattern signals a successful dividend strategy aimed at sustained investor returns.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio measures the proportion of earnings a company pays to its shareholders in the form of dividends. A payout ratio lower than 65% is often seen as sustainable, allowing the company ample room to reinvest in its own growth while also rewarding shareholders. It's essential to consider this metric over an extended period to judge the company's stability and profitability.

Over the last 20 years, Tractor Supply (TSCO) has successfully maintained an average payout ratio of 17.02%, which is significantly lower than the threshold of 65%. This conservative payout strategy is beneficial for the company as it indicates a prudent approach to dividend distribution, ensuring that the company maintains a robust balance sheet. This trend is quite positive and suggests that TSCO has consistently prioritized sustainable growth and financial stability over aggressive dividend payouts. Even in recent years, where the payout ratio is higher (40.5947% in 2023), it remains within a safe margin, indicating sound financial management.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

Analyzing the trend of Tractor Supply (TSCO) from 2003 to 2023, the company's dividends appear well covered by the earnings. In 2003, both the Dividend per Share (DPS) and Earnings per Share (EPS) were non-existent, but starting from 2010, there is a consistent dividend payout. By looking at the EPS compared to the DPS every year, it's clear that TSCO has managed to keep a healthy ratio of coverage. For instance, in 2023, the EPS was 10.1491 and the DPS was 4.12, resulting in a payout ratio of about 40%. This indicates a conservative and sustainable dividend policy, which bodes well for its financial stability and ability to continue rewarding shareholders without compromising growth. Such a trend is favorable as it reflects a focus on maintaining financial health whilst also providing consistent returns to shareholders.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow are critical because they signify that the company generates sufficient cash to meet dividend payments, ensuring sustainability.

When examining the data from 2003 to 2023, we note significant fluctuations in Tractor Supply's free cash flow (FCF) and dividend payout amounts. In 2003-2007, we see nominal or negative FCF, transitioning to positive trends post-2008. Dividend payments began in 2010 at $20.35 million and progressively rose, reaching $449.62 million in 2023. The metric of 'dividend covered by cash flow' increasingly improves, rising from 0.16 in 2010 to 0.78 in 2023. This indicates improved sustainability in the company's ability to generate sufficient cash flow to cover its increasing dividends. Overall, the trend is favorable for investors, depicting robust financial health and prudent fiscal management by Tractor Supply over the years.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years are essential because they provide a reliable income stream for investors and suggest financial stability and consistent profitability.

Tractor Supply (TSCO) has shown impressive growth in its dividend per share (DPS) over the last 20 years. Starting from 2003, where no dividends were paid, they began issuing dividends in 2010 with a DPS of $0.14. This figure has steadily increased year by year. By 2023, the DPS reached $4.12, reflecting a robust upward trend. However, it’s important to note the year 2022–$3.68, and hence the 2023 dividend of $4.12 did not drop by 20%. This trend is beneficial for income-seeking investors as it highlights TSCO's commitment to rewarding its shareholders.

Dividends Paid for Over 25 Years?

The criterion of paying dividends for over 25 years is a marker of a company's stability and long-term profitability. It indicates steady management practices and a commitment to returning value to shareholders.

Tractor Supply (TSCO) initiated dividend payments in 2010 and has been increasing its dividend per share consistently since then. According to the data, TSCO has been paying dividends for 14 years (2010-2023), which is promising but falls short of the 25-year mark. Given that TSCO has steadily increased its dividend from $0.14 per share in 2010 to $4.12 per share in 2023, this trend is positive, suggesting the company is dedicated to increasing shareholder value. However, it does not yet meet the 25-year criterion.

Reliable Stock Repurchases Over the Past 20 Years?

Stock repurchases can indicate management's confidence in the company's future and can positively influence EPS by reducing outstanding shares.

Over the past 20 years, Tractor Supply (TSCO) has consistently repurchased shares, as evidenced by the reliable repurchase years: 2007, 2008, 2009, 2011 through to 2023. The average repurchase decrease rate of -1.9227% is indicative of a steady decline in shares outstanding, translating to potential value creation for shareholders via increased earnings per share (EPS). Management’s consistent buyback efforts signal a strong optimistic outlook about the company's cash flow and intrinsic value. This trend is good as it shows a sustained commitment to enhancing shareholder value through reduced share dilution.