Here’s My Top Dividend Stock to Buy in September

One of the great things about stocks is that investors can earn not only from the appreciation of a stock’s value over time, but also from income (if the stock pays a dividend). The difficult part, however, is finding a company that pays a significant dividend and has strong share price growth potential. But there are some good choices out there for investors who look closely enough.

A great option is Supply of tractors (TSCO -0.29%) – a rural lifestyle retailer with promising growth potential and impressive profitability. Additionally, the company’s dividend payout has been steadily increasing every year for 12 years.

The Tractor Supply dividend: what you need to know

The rural lifestyle retailer began paying a dividend in 2010. Since then, it has increased the dividend every year. Additionally, the company’s dividend growth has been staggering. Between February 2019 and February 2022, when the company’s latest dividend increase was paid, Tractor Supply’s quarterly dividend payment increased by nearly 200%. Its most recent increase was a staggering 77% increase.

What about the company’s dividend yield? On an annual basis, Tractor Supply’s current quarterly dividend of $ 0.92 stands at $ 3.68, giving the stock a dividend yield of nearly 2%.

Sure, a 2% dividend yield isn’t exciting. But it is significant in the context of the speed at which it has grown. Of course, investors shouldn’t expect dividend hikes as robust as the company’s most recent ones in the future. But there’s no reason strong dividend growth can’t continue. Not only has the company demonstrated impressive earnings growth in recent years, but it is paying less than a third of its annualized earnings. This means the company has plenty of room to increase its shareholder payments over the next few years.

Strong foundations

Looking beyond Tractor Supply’s dividend, there are also good reasons why the shares rise over time. The company recently reported record second quarter results, with sales up 8.4% year-over-year despite the difficult comparison when revenues increased 13.4% year-over-year in the second quarter of 2021.

A sketch of a bar chart with an arrow showing a growth trend.

Image source: Getty Images.

Earnings per share for the second quarter grew even faster than revenues, up 10.7% year-over-year. This profit outperformance is partly due to the company’s share buyback program. The company spent nearly $ 700 million to buy back its shares in the first half of the year alone. This means Tractor Supply is wasting no time tapping into the $ 2 billion of additional capital it authorized for stock repurchases when it reported fourth-quarter results in January.

As if all of this wasn’t sufficient proof of the company’s strong momentum, Tractor Supply recently increased its prospects for both full-year sales and earnings per share. In its second quarter update, management said it now expects net sales for the full year to be between $ 13.95 billion and $ 14.05 billion. It previously expected $ 13.6 billion to $ 13.8 billion. His earnings per share forecast increased from a range of $ 9.20 and $ 9.50 to $ 9.48 and $ 9.60.

This more optimistic view, Tractor Supply CEO Hal Lawton explained in the company’s second quarter earnings release, is also despite management’s outlook for “a highly inflationary and volatile environment.” But it turns out that the company’s strong first-half performance, consistently strong sales, and high visibility into its cost structure and inventory quality are enough for management to increase its prospects anyway.

To top it off, Tractor Supply shares are trading at a very reasonable valuation of around 21x earnings. While this isn’t a cheap price, it’s a fair premium to pay for getting a stake in such a healthy company with excellent dividend growth potential.

Daniel Sparks has no position in any of the titles mentioned. Clients of him can own shares of the companies mentioned. The Motley Fool recommends the supply of the tractor. The Motley Fool has a disclosure policy.

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