One of the great things about stocks is that investors can not only make money from the appreciation of a stock's value over time but from income as well (if the stock pays a dividend). The tricky part, however, is finding a company that both pays a meaningful dividend and has strong share price growth potential. But there are some good choices out there for investors who look closely enough.
One great option is Tractor Supply (TSCO 0.20%) -- a rural lifestyle retailer with promising growth potential and impressive profitability. Even more, the company's dividend payment has been steadily increasing annually for 12 years.
Tractor Supply's dividend: What you need to know
The rural lifestyle retailer started paying a dividend in 2010. Since then, it has raised its dividend every single year. Even more, the company's dividend growth has been staggering. Between February of 2019 and February of 2022, when the company's most recent dividend increase was paid out, Tractor Supply's quarterly dividend payout increased by nearly 200%. Its most recent increase was an impressive 77% increase.
What about the company's dividend yield? On an annualized basis, Tractor Supply's current quarterly dividend of $0.92 amounts to $3.68, giving the stock a dividend yield of nearly 2%.
Sure, a 2% dividend yield isn't exciting. But it's meaningful in the context of how fast it has been growing. Of course, investors shouldn't expect dividend increases as robust as the company's most recent one 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 out less than a third of its annualized earnings. This means the company has plenty of room to increase its payout to shareholders in the coming years.
Looking beyond Tractor Supply's dividend, there's good reason for shares to rise over time, too. The company recently reported record second-quarter results, with sales rising 8.4% year over year despite going up against tough comparison when revenue increased 13.4% year over year in the second quarter of 2021.
Second-quarter earnings per share grew even faster than revenue, rising 10.7% year over year. This bottom-line outperformance is partly due to the company's share repurchase program. The company spent nearly $700 million repurchasing its own shares in the first half of the year alone. This means Tractor Supply isn't wasting time in tapping into the $2 billion in additional capital it authorized for share repurchases when it reported its fourth-quarter results in January.
As if all of this isn't enough evidence of the company's strong momentum, Tractor Supply recently raised its outlook for both full-year sales and earnings per share. In its second-quarter update, management said it now expects full-year net sales to be between $13.95 billion and $14.05 billion. It was previously expecting $13.6 billion to $13.8 billion. Its view for earnings per share increased from a range between $9.20 and $9.50 to $9.48 and $9.60.
This more optimistic view, explained Tractor Supply CEO Hal Lawton in the company's second-quarter earnings release, is even in spite of 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 raise its outlook anyway.
Putting icing on the cake, Tractor Supply stock trades at a very reasonable valuation of about 21 times earnings. While this isn't a cheap price, it's a fair premium to pay in order to get a stake in such a healthy company with excellent dividend growth potential.