Rural lifestyle spending hasn't been what it used to be in recent years -- at least in terms of its year-over-year growth. But, if leading rural retailer Tractor Supply (TSCO 0.06%)'s accelerating growth recently is any indication of broader trends in rural retail, a few years of slow growth following a massive surge in sales during COVID may finally be over. Not only did Q3 look good, but management provided upbeat commentary about 2026 in its most recent earnings call.
In short, the company's latest update points to a return to a more normal growth cadence in 2026. And based on the targets the company laid out in its most recent Investment Community Day, "normal" for Tractor Supply may be pretty impressive.
All of this, combined with a combination of improving traffic and consistent capital returns, helps explain why Tractor Supply remains my top dividend stock idea for 2026 and beyond.
Image source: Getty Images.
Sequential momentum
Management's third quarter built nicely on its prior quarter, capturing the company's strong sequential and year-over-year momentum and, more importantly, a potential end to a sales slump that lasted a few years.
First, on Q3: Comparable store sales increased 3.9% year over year, bolstered by growth in both transactions and tickets. Transaction count was up 2.7% and average ticket rose 1.2%. This, combined with store openings and a recent acquisition, helped net sales for the quarter rise 7.2% to $3.72 billion.
By comparison, second-quarter comparable sales grew 1.5%.
Looking to Q4, the company is planning for comparable sales (often called same-store sales) growth between 1% and 5%. That range implies a midpoint consistent with the long-term comp algorithm and suggests the sequential momentum could hold if seasonal categories cooperate.
"As we enter the fourth quarter, we are well positioned for the fall and winter seasons, operating with discipline and controlling what we can control," Hal Lawton, president and chief executive officer, said in the third-quarter news release.
Lawton's nod to controlling only the factors within its control is an acknowledgement of the quarter's significant dependence on how winter weather plays out.
Looking out to 2026, management is particularly optimistic.
"We expect transactions to remain a strength, with average ticket staying positive and the early benefits of our strategic investments contributing to that momentum," said Tractor Supply chief financial officer Kurt Barton in the company's third-quarter earnings call regarding his expectations for 2026.
NASDAQ: TSCO
Key Data Points
Normalization defined
The company defined "normalization" at its late-2024 Investment Community Day. The long-term financial algorithm calls for net sales growth between 6% and 8%, comparable sales between 3% and 5%, and operating margin between 10% and 10.5%. This all translates to an expectation for annualized earnings-per-share growth between 8% and 11% -- not bad for a retailer with a long history of success that has a price-to-earnings ratio of 26.5 and boasts a dividend yield of about 1.7% as of this writing.
Importantly, the company won't just be reliant on same-store sales growth for this normalized growth trajectory. Store growth underpins that plan, too. After opening about 90 new stores this year, management expects to open around 100 locations in 2026, aided in part by 18 recently acquired Big Lots sites. That is a tangible unit-growth lever on top of an expectation for same-store sales growth rates of 3% to 5%, which could keep total revenue growth in the algorithm's band even if the company's same-store sales growth can't hit the high end of its target range.
Returning capital to shareholders
With business momentum like this and given management's strong outlook, the company's dividend looks well-supported. But there's more to this dividend story than its dividend yield.
The company is returning capital through buybacks, too. In the third quarter, Tractor Supply paid $121.9 million in dividends and repurchased $75.4 million of stock -- for a total of $197.3 million returned to shareholders. Even more, it did this while still funding new stores and a range of growth initiatives, including final-mile delivery, a program to increase sales with higher-volume farmers, and the continued rollout of garden centers at its stores.
Overall, the evidence points to a likely move toward the company's stated long-term target growth ranges -- including earnings-per-share growth that could approach double-digit rates at some point next year.
Sure, the fourth quarter is highly dependent on weather. But even the low end of the company's same-store sales growth range implies year-over-year revenue growth -- especially when paired with new store openings during the period. Additionally, there's the icing-on-the-cake opportunity of same-store sales for the fourth quarter coming in as high as 5%. This is a pretty decent near-term backdrop as we wait for what management believes will be more normalized growth in 2026.
That is why Tractor Supply remains one of my top dividend stock ideas heading into 2026.
