Tractor Supply (TSCO 3.26%) is arguably an easy stock to write off for most investors. The company's stores are away from population centers, so it is not a fixture in areas where most Americans live.
Moreover, it has built approximately 2,200 stores spread across 49 states and has shown no apparent inclination to expand internationally. Thus, you might assume it is nearing market saturation.
Nonetheless, Tractor Supply has harvested massive returns for investors, and as it continues forward, its growth should continue for the following reasons.
1. Plenty of room for store growth
Tractor Supply has prospered by carving out a niche among rural lifestyle enthusiasts. Its primary demographic consists of the so-called "hobby farmers" who live on a few acres and engage in smaller-scale agriculture. This approach has taken the stock an astounding 61,500% higher since its initial public offering in 1994.
TSCO total return level data by YCharts.
And the company has not hesitated to acquire retailers in related areas, like the separate Petsense chain for companion animals. It has also bought out other chains like Orscheln Farm & Home, which will become additional Tractor Supply locations. Hence, it remains expansion-minded through a mix of sticking to its core concept and serving the pet market.
Rural America has also begun to grow in population. More employees and contractors work remotely, and the pandemic prompted many former city dwellers to move to the countryside, a trend expanding Tractor Supply's addressable market.
2. Strong financials (relatively speaking)
Tractor Supply's financials have shown some resilience. Despite slow comparable-store sales growth in the first quarter, its net sales in the first half of 2023 were $7.5 billion, 8% more than in the same period last year. Net income was $604 million during the first two quarters of the year, though rising operating expenses meant its profits only grew 3% from year-ago levels.
Due to concerns about falling customer spending, Tractor Supply reduced its 2023 revenue estimate to $14.85 billion at the midpoint, down from $15.15 billion. It also adjusted its net income forecast to a mid-range estimate of $1.135 billion, down from $1.15 billion.
The stock has fallen slightly this year, but that did not stop Tractor Supply from raising its dividend by 12% in February, amounting to a near doubling of the payout in two years. With the dividend now at $4.12 per share annually, new shareholders will earn a 1.9% dividend yield, well above the S&P 500's 1.5% payout.
The retailer has hiked its payout every year since introducing it in 2010, raising its profile as a dividend stock, especially with the size of the aforementioned increases. So investors might want to buy it despite its price-to-earnings ratio of 21, a moderate level considering the history of the stock.
Consider Tractor Supply
Despite an extensive 49-state footprint and some recent sluggishness, Tractor Supply is not done returning bumper crops of growth and earnings. The company has many avenues related to its core business that it can take advantage of, especially with a rising rural population.
Even at a moderate valuation, its history of massive growth and a fast-growing dividend should help boost the retail stock. If more urban investors take notice of Tractor Supply's success in the countryside, it could reap a bountiful harvest.
