1 Top Dividend Stock to Consider for 2024 and Beyond

Following a strong year for the S&P 500 and huge gains for the tech-heavy Nasdaq Composite, it’s a lot more difficult to find reasonably valued investments than it was a year ago. This is especially true in tech since many tech stocks soared last year. But for those willing to look beyond tech, there are some decent investments up for grabs.

One stock outside of tech that underperformed last year and is worth considering buying today is Tractor Supply (TSCO -0.56%) — the leading rural lifestyle retailer. Not only do these stocks look likely to rise over the long haul but they also pay investors growing dividends.

Here’s why investors may want to consider adding this stock to their portfolio.

Tractor Supply offers investors resilience

While it’s up for debate whether the economy is headed for a “soft landing” or a recession, most investors would agree that there’s a risk that the Federal Reserve’s recent rate hikes could lead to some weaker spending from consumers or, at the very least, slower growth rates in consumer spending. This has many investors looking to invest in resilient businesses — ones in which revenue is unlikely to take a big hit if a tough macroeconomic environment does materialize.

Tractor Supply stock is a good option for investors looking for a reasonably priced, resilient business. Well over half of the rural lifestyle sales come from demand-driven, needs-based products like livestock feed and bedding, pet food, lubricates, fertilizer, weed control, and bird seed.

“We are focused on providing key products that our customers use on a regular basis for their lifestyle and maintenance needs with emphasis on [consumable, usable, and edible] products,” Tractor Supply’s most recent annual report read. Management calls these consumable, usable, and edible products C.U.E.

Retail, in general, is quite finicky. But Tractor Supply’s business is more resilient and predictable than most. Additionally, sales are unlikely to fall sharply during a recession since Tractor Supply’s sales are heavily tied to demand-driven, needs-based products.

Is Tractor Supply stock a buy?

Trading at just 22 times earnings, Tractor Supply trades at an attractive valuation and looks like a buy today. This is partly because of a recent pullback in the stock price. Shares fell 4% last year even as the S&P 500 gained 24%. This was due to the company’s deteriorating comparable store sales. The key metric, which measures the year-over-year change in sales at stores open for more than a year, was flat in the company’s most recently reported quarter.

But some context is in order. Tractor Supply has been up against some very difficult comparisons. The company’s comparable store sales rose about 23%, 17%, and 6% in 2020, 2021, and 2022, respectively. It benefited from a change in the way consumers were spending as they shifted some of their budget away from services to goods. As consumers’ spending habits are returning to more normalized spending patterns and as the company goes up against tough comparisons, Tractor Supply’s same-store sales trends are suffering in recent quarters.

Astute investors, of course, realize that once spending fully reverts back to pre-pandemic patterns, Tractor Supply’s same-store sales comparisons will get easier and the key growth metric will likely improve.

While investors wait for Tractor Supply to return to same-store sales growth, they can take refuge in the fact that the company pays out a solid dividend that has grown dramatically in recent years. The company’s current quarterly dividend of $1.03 gives Tractor Supply a dividend yield of 1.8%. Highlighting how fast this dividend has grown, it’s up from $0.52 just two years ago. With a payout ratio of just 39% and analysts consensus forecast calling for earnings to grow at a compound average annualized growth rate of 5.4% over the next five years, Tractor Supply will likely grow its dividend further in the coming years.

For more risk-averse investors, it may be worth waiting to consider buying the stock until after they have more information about how the company performed in the final quarter of 2023. Tractor Supply reports its fourth-quarter results before the market opens on Feb. 1.