Tractor Supply Company (NASDAQ:TSCO) stock is about to trade ex-dividend in 4 days time. You can purchase shares before the 23rd of August in order to receive the dividend, which the company will pay on the 10th of September.
Tractor Supply's next dividend payment will be US$0.35 per share, on the back of last year when the company paid a total of US$1.40 to shareholders. Calculating the last year's worth of payments shows that Tractor Supply has a trailing yield of 1.4% on the current share price of $100.55. If you buy this business for its dividend, you should have an idea of whether Tractor Supply's dividend is reliable and sustainable. As a result, readers should always check whether Tractor Supply has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Tractor Supply's payout ratio is modest, at just 28% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 30% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Tractor Supply's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Tractor Supply's earnings per share have been growing at 14% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tractor Supply has delivered an average of 29% per year annual increase in its dividend, based on the past 9 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Has Tractor Supply got what it takes to maintain its dividend payments? Tractor Supply has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Tractor Supply, and we would prioritise taking a closer look at it.
Ever wonder what the future holds for Tractor Supply? See what the 25 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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