TSCO is a retailer of rural lifestyle products and has 2000 stores across 49 states. They focus on products for home, land, pets and animals and cater to farmers, horse owners, ranchers, hobby farmers, contractors, tradesmen, and suburban and rural homeowners. They have been in business for 80 years and had sales of $10.62B in 2020. They operate under the Tractor Supply and Petsense brands across the country.
The company offers the following:
- Clothing
- Equine and pet supplies
- Tractor / Trailer parts and accessories
- Lawn and garden supplies
- Sprinkler / irrigation parts
- Power tools
- Fencing
- Welding and pump supplies
- Riding lawn mowers
(Source: Tractor Supply Company).
www.corporate.tractorsupply.com
TSCO is growing rapidly and recently announced their 2000th store and raised their quarterly dividend 77%!
Some metrics I look for –
Safety:
Dividend Safety Score – 68 out of 99 – considered “safe”
Current Ratio (look for a number higher than 1, higher the better) – 1.7
Debt to Equity (lower the better) – 0.50
Payout Ratio – 24.80%
Estimated Earnings Growth Rate – 5 year – 14.17%
Dividend history:
Years of dividend increases: 11
Dividend growth rate – 5 year – 17.72%
Current yield: 1.76%
Current dividend: $3.68
Valuation:
DCF model: $258.35
P/E Mean Reversion: $195.69
Dividend Yield Theory: $283.08
Average of the three valuations – $245.70
Analyst Consensus Estimate (1 Year) – $234.92
Current price: $210.05 (01/28/2022)
Potential discount – 12-17%
Commentary:
TSCO is a rapidly growing specialty retailer in a niche market. They focus on rural and suburban locations across the country and cater to that lifestyle. Their stores are smaller than a Home Depot or Lowes which gives them a more personal and friendly appearance. It is easier to hop in and grab what you need without having to work through aisles and aisles of merchandise.
They just recently announced their 2000th store and are also focused on their specialty pet business, Petsense. This further diversified their business model away from the “rural” lifestyles of tractors and farming to a broader audience. Sales of pet supplies and food surpassed $103 billion in 2020 according to the American Pet Products Association (APPA). Americans love their pets and are willing to spend on them, which opens the door for cross-selling other products when those people shop and widens TSCO’s brand awareness
The company has fantastic financials, with low debt to equity, solid current ratio, meaning it has ample funds to pay for short term liabilities, growing revenues and profit, an amazing operating margin of 10%, which is very high for a retailer, and a very low dividend payout ratio. The dividend has been rising for 11 years and over the past five years has increased an average of over 17%. This does not take into account the recently announced increase of 77%! This company pays their dividend in March, June, September and December, with the next Ex-Dividend date of February 18th. The current yield is low but with a growth rate of 17+% and a low payout ratio, this company is a dividend compounding machine and should have plenty of years of dividend growth in their future. For those dividend investors with a long timeline and are looking for total return plus dividend income, TSCO may be a good choice. Their total return for the past 5 years is 184.40%.
Let me know what you think!
Disclosure: I own TSCO.