Despite shares falling in 2025, even as the S&P 500 rose sharply, rural retailer Tractor Supply (TSCO 1.02%) is one of my top dividend stock ideas for 2026. In fact, its underperformance, despite improving business fundamentals throughout 2025, is a reason to buy; shares are arguably even more undervalued now than they were at the start of the year.
But there's another unique reason to buy Tractor Supply in 2026: It stands in stark contrast to many of the AI (artificial intelligence)-focused market darlings of 2025. While the AI boom may remain a driving force in 2026, it wouldn't be surprising to see AI stocks take a breather or even fall after many of them rose significantly in 2025. And Tractor Supply's simple but powerful needs-based business model represents the type of dependable companies investors might rotate into if the market turns sour on AI stocks.
And even if AI stocks continue rising in 2026, it's good to have some stocks that expose investors to other areas of the market, balancing out AI bets -- and Tractor Supply, with its attractive dividend, is a good option.
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A dividend with room
Tractor Supply (TSCO 1.02%) is not a high-yield stock. But it is a dividend stock designed for consistency.
The annualized dividend is $0.92 per share, or $0.23 per quarter, giving the stock a dividend yield of 1.8% as of this writing. Not small but also not impressive. Still, it's worth noting that this dividend yield is easy for the company to sustain. The company's payout ratio (the percent of a company's earnings paid out in dividends) is just 44%. This means the dividend has plenty of room to grow even if Tractor Supply's earnings don't grow.
A dividend that compounds
One reason to love Tractor Supply is its dividend growth track record.
In February, the company increased its dividend 4.5%. But don't assume that this moderate increase is representative of the company's typical dividend hike. Zoom out, and you'll see that the company normally rolls out double-digit raises for investors.
What explains the very modest dividend growth recently?
With the company finally seeing a normalization in its business over the last few years, after benefiting from a surge in demand during the COVID-19 pandemic as people stayed at home and spending shifted from services to goods, Tractor Supply's dividend growth has slowed to reflect softer sales growth during this period of normalization in consumer spending patterns. But if Tractor Supply gets back to more normalized business growth now that it's up against easier comparisons, dividend growth should pick back up, too.
While we may not get back to double-digit dividend growth, I at least expect high single-digit rate increases in the coming years.
NASDAQ: TSCO
Key Data Points
A business with a runway
Importantly, Tractor Supply is working its way back to higher growth rates on key business metrics, including revenue, earnings, and comparable-store sales.
Tractor Supply grew its third-quarter net sales 7.2% year over year. And comparable-store sales rose 3.9% -- a clear step up from the prior year's third quarter, when comparable-store sales declined 0.2%. Earnings per share grew even faster in the quarter, rising 8.6% year over year -- a significant acceleration from the 2.8% growth in earnings per share the company posted in the second quarter of 2025.
Management has also put some attractive long-term targets on the table. At its 2024 Investment Community Day, the company said it expected to average annualized sales growth of 6% to 8% from the start of 2025 to the end of 2030. Even more, it said it expected earnings per share to compound at an average rate of 8% to 11%. Driving this growth will be annualized comparable-store sales growth of 3% to 5%, operating margin expansion, and a steady cadence of new store openings, according to management forecasts.
While there are risks, including the possibility of intensified competition from e-commerce players, general merchandise superstores, and even home goods retailers, Tractor Supply looks like a good bet overall -- especially at its current valuation of 24 times earnings. In addition, the company's dividend should grow over time -- and it's starting from a base of a solid 1.8% dividend yield.
