Off-price retail giant TJX Companies (NYSE:TJX) has raised its dividend every year for more than two decades. During that period, its dividend has grown at a compound annual rate of 23%. Nevertheless, TJX has historically had a fairly low dividend yield. Indeed, just five years ago, the yield was less than 1%.

However, TJX's dividend yield has increased recently, as the stock has been stuck in neutral for most of the past two years while the dividend continued to rise. On Wednesday, the company confirmed that it will boost its quarterly payout by another 25% this year, to $0.39/share. This makes TJX an attractive dividend stock for investors to consider.

TJX Dividend Yield (TTM) Chart

TJX Companies Dividend Yield (TTM), data by YCharts.

The dividend yield catches up

TJX stock recently hit an all-time high around $85. However, the stock first surpassed the $80 mark back in 2016. Meanwhile, the company implemented a 20% dividend hike last year, followed by this year's 25% increase.

Thus, there has been a 50% rise in TJX's dividend payout during a period when the stock has inched up marginally. As a result, TJX's forward dividend yield has reached 1.84%, based on the stock's Thursday closing price of $84.96. That's almost exactly in line with the average yield for the rest of the S&P 500.

Of course, there are other dividend stocks with much higher yields in the retail industry. For example, top department store -- and perennial TJX rival -- Macy's (NYSE:M) has a yield of roughly 5%. (Macy's dividend yield briefly surpassed 8% when the stock bottomed out last fall.) However, while Macy's isn't likely to cut its dividend, it's in no hurry to raise it, either. After several years of steady annual increases, Macy's has held its quarterly payout at $0.3775/share for two years and counting.

TJX doesn't offer a flashy high yield like some dividend stocks. Its attractiveness comes from the safety and future growth potential of its dividend.

The payout ratio remains quite modest

Last year, TJX achieved adjusted earnings per share (EPS) of $3.85, up 9% year over year. Based on its quarterly payout of $0.3125/share, TJX's dividend payout ratio was a modest 32%.

A woman with a shopping cart in front of a Marshalls store

TJX Companies has a low dividend payout ratio of just 32%. Image source: Marshalls.

For the current 2019 fiscal year, the company expects EPS to reach $4.73-$4.83, driven primarily by the recent reduction of the corporate tax rate. Assuming that EPS reaches the high end of this guidance range -- which is a reasonable guess, given that TJX typically issues very conservative forecasts -- the payout ratio would remain steady at 32%.

Additionally, free cash flow has tended to be similar to TJX's reported earnings in recent years. This indicates that TJX isn't relying on accounting tricks to boost its net income. It also reflects the company's capital-light business model -- it has been able to grow its store count steadily without incurring huge capital expenditure costs.

Clearly, TJX's 23% dividend growth rate is unsustainable in the long run because the company's earnings won't grow that quickly. Nevertheless, TJX could keep boosting its dividend at an accelerated rate for a few more years by increasing its payout ratio to a still-reasonable 50% or 60%.

Plenty of room for capital appreciation, too

One of the best aspects of dividend growth stocks is that they often provide substantial capital appreciation in addition to solid dividend yields. TJX stock currently trades for less than 18 times earnings, despite the company's strong growth potential. If TJX's sales momentum from the fourth quarter continues this year, the stock has a good chance to hit $100 by year-end.

TJX is one of the few retailers that's still finding lots of opportunities to add stores, while also driving steady traffic growth in its existing locations. The proven strength of its business model should give investors confidence that the company can continue growing its dividend for many years to come.