For investors looking for more stability in a volatile market, dividend-paying company Tractor Supply (TSCO 1.37%) is trading at a very attractive valuation after a recent pullback in its stock price. The largest rural lifestyle retailer in the U.S., which is growing sales during a period when some retailers are struggling, exemplifies resilience. Despite a 12% year-to-date decline in its stock price, the company's fundamentals remain robust. Even more, the company continues to repurchase its shares and increase its dividend, extending a long streak of annual payout hikes.
The dividend stock's recent pullback may be discouraging for shareholders. But it might also be a great buying opportunity -- especially for those who haven't bought into this compelling long-term growth story yet.
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Robust results in a difficult environment
At first glance, Tractor Supply's financials may seem underwhelming. The company reported a 2.1% year-over-year increase in revenue in its first quarter of 2025. This growth was driven by strong performance in consumable, usable, and edible (C.U.E.) categories, as well as contributions from new store openings and its recent acquisition of Allivet, a leading online pet pharmacy.
Comparable store sales decreased by 0.9%, reflecting a 2.9% decline in average ticket, partially offset by a 2.1% increase in transaction count. Gross profit rose 2.8% to $1.26 billion, with gross margin improving by 25 basis points to 36.2%. Diluted earnings per share (EPS) were $0.34, compared to $0.37 in the same quarter of the previous year.
But investors need to understand the broader picture when it comes to Tractor Supply. The COVID-19 pandemic led to a significant shift in consumer spending away from services and toward goods. In addition, rural and outdoor categories, specifically, were in high demand. This led to a massive increase in Tractor Supply's sales. Indeed, the company's 2022 sales of $14.2 billion were up an incredible 70% from 2019 levels.
As consumer spending returns to more normal trends, including a shift in budget away from goods and toward services, it makes sense that Tractor Supply's sales trends would suffer. With this backdrop in mind, the company's ability to maintain its sales, let alone grow, following such a huge tailwind is impressive.
One reason to be cautious
Still, there are reasons investors should be somewhat cautious. When the company reported its latest quarterly results on April 24, a turbulent macroeconomic environment had management backpedaling a bit on its expectations for the year. Management said it now expects total 2025 net sales to increase between 4% and 8% year over year.
While the high end of this range is above the high end of the guidance range management had provided previously (7%), the low end of the range is below the minimum growth of 5% the company had guided for at the beginning of the year. Further, management reduced its expected range for EPS to between $2.00 and $2.18, down from its first forecast for EPS to be between $2.10 and $2.22.
While acknowledging in its first-quarter update that an increase in macroeconomic uncertainty and the introduction of new tariffs can have a modestly negative impact on its business, management remained optimistic overall.
"As the year unfolds amid increasing volatility, our conviction in Tractor Supply's resilient and durable business model remains strong," said Tractor Supply CEO Hal Lawton in the company's first-quarter earnings release. "We have a long track record of navigating uncertain environments, and we believe we are well-positioned to do so once again."
Enhanced shareholder returns
But we've yet to address the main reason Tractor Supply is a great investment idea despite some of the risks and challenges it faces in this turbulent market: its disciplined and prudent capital return program.
Demonstrating its ongoing commitment to return capital to shareholders, Tractor Supply said in February that it is increasing its quarterly dividend by 4.5% to $0.23 per share, marking its 16th consecutive year of dividend increases. This brings the annualized dividend to $0.92 per share, offering a yield of approximately 1.9% at current stock prices.
Additionally, the board authorized a $1 billion increase to the existing share repurchase program, bringing the total authorization to $7.5 billion since its inception in 2007. As of Dec. 28, 2024, Tractor Supply had repurchased 357.4 million shares for approximately $6.03 billion since 2007, when its share repurchase program was initiated. This leaves around $1.5 billion available for future buybacks.
The rural lifestyle retailer spent $94 million buying back shares in Q1 alone, showing how serious it is about buying back its stock.
When you zoom out, Tractor Supply stock looks like a buy
Looking past its near-term challenges, Tractor Supply has proven it can grow massively over a five-year period. Further, the company's resilient business model, expanding store footprint, and loyal customer base -- evidenced by its 40 million members in its Neighbor's Club loyalty program -- underscore its strong market position.
It's trading at a reasonable valuation of 25 times earnings and with a decent dividend yield of about 1.9%. Today looks like a good time for investors to consider buying shares of this resilient business.
