Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Tractor Supply Company (NASDAQ:TSCO) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company’s record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Tractor Supply’s shares on or after the 23rd of February, you won’t be eligible to receive the dividend, when it is paid on the 12th of March.
The company’s next dividend payment will be US$1.10 per share, on the back of last year when the company paid a total of US$4.40 to shareholders. Based on the last year’s worth of payments, Tractor Supply stock has a trailing yield of around 1.9% on the current share price of US$236.49. If you buy this business for its dividend, you should have an idea of whether Tractor Supply’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Tractor Supply
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That’s why it’s good to see Tractor Supply paying out a modest 41% of its earnings. 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. Over the last year, it paid out more than three-quarters (78%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
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.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we’re glad to see Tractor Supply’s earnings per share have risen 19% per annum over the last five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we’d wonder why management are not reinvesting more in the business.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Tractor Supply has lifted its dividend by approximately 24% a year on average. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Should investors buy Tractor Supply for the upcoming dividend? From a dividend perspective, we’re encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There’s a lot to like about Tractor Supply, and we would prioritise taking a closer look at it.
So while Tractor Supply looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. For example – Tractor Supply has 2 warning signs we think you should be aware of.
If you’re in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Valuation is complex, but we’re helping make it simple.
Find out whether Tractor Supply is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
