1 Top Dividend Stock Is on Sale

As macroeconomic uncertainty persists, many investors may be looking for resilient businesses likely to hold up well even if a recession rears its ugly head. Dividend stocks with a long track record of dividend growth are usually good options when investors are seeking out companies like this. But investors looking for more resilience in their portfolio shouldn't pick up just any dividend stock. Instead, they should be picky.

Specifically, investors looking for a good dividend stock for uncertain times should search for a company with a consistent track record of dividend payments, a low payout ratio, and an underlying business unlikely to take a major hit during a recession. Rural lifestyle retailer Tractor Supply (NASDAQ: TSCO) possesses these characteristics.

Let's take a closer look.

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Strong results from a resilient business

Tractor Supply's results for its fourth quarter of 2024 highlight the company's resilience amid a challenging retail environment. Net sales for the quarter increased 3.1% year over year to about $3.8 billion, driven by new store openings and a 0.6% rise in comparable store sales. However, net income decreased 4.6% to $236.4 million, and diluted earnings per share (EPS) declined 3.3% to $0.44, slightly missing analyst expectations. But if you zoom out to the company's full-year 2024 results, you'll see a company that still grew both sales and earnings moderately -- quite an achievement considering the company experienced extraordinary growth during the COVID-19 pandemic and hasn't given those gains back. For the full fiscal year 2024, net sales rose 2.2% to approximately $14.9 billion, with comparable store sales up 0.2%. Diluted EPS for the year increased 1.1% to $2.04.

Highlighting how the retailer grew impressively during COVID and has maintained its market share gains, consider how the company's full-year 2024 sales are up more than 78% from full-year 2019 sales. Given this strong growth, which came primarily in 2020, 2021, and 2022, it's easy to forgive Tractor Supply for some weakness as consumer shopping habits normalize. Indeed, investors should applaud the company for holding on to its sales gains.

Why this is a buying opportunity

With shares of the retailer slipping about 4% year to date, this is a good opportunity to pick up a position in the stock. The stock's recent decline is due in part to a broader market sell-off but also to the company's slight fourth-quarter earnings miss and management's cautious outlook for the year.

But consider the positives.

First, there's just the resilient nature of what Tractor Supply sells. A large portion of the company's sales come from consumable, usable, and edible prouducts like livestock feed, pet food, bird seed, fertilizer, and pest control. These products are needed in any environment and keep Tractor Supply customers coming back to the store. Tractor Supply's business, therefore, is inherently resilient.

Then there's the company's strong commitment to returning capital to shareholders. In fiscal 2024, the rural retail specialist returned over $1 billion to shareholders, including $472.5 million in dividends and $560.8 million in share repurchases. Furthermore, the company's dividend payout ratio stands at approximately 43%, indicating a balanced approach between rewarding shareholders and retaining earnings for growth. And speaking of its dividend, Tractor Supply has increased it for 16 consecutive years, reflecting its financial stability and commitment to shareholder returns.

Looking ahead, Tractor Supply's full-year revenue outlook for 5% to 7% sales growth may not be as high as some investors were hoping for. But it would still mark a notable acceleration over last year's sales growth of 2.2%.

Overall, Tractor Supply's long-term prospects look favorable -- especially in relation to the stock's conservative valuation of just 25 times earnings. The company's strategic initiatives, including new store openings and its plans to continue adding garden centers to its existing stores, aim to drive sustained growth. For dividend-focused investors seeking a reliable income stream backed by a resilient business model, Tractor Supply presents a compelling opportunity. Though there's no way to know whether shares will go lower or not, investors at least get access to a 1.8% dividend yield and a high-quality company, both of which bode well for the stock's long-term potential.

Should you invest $1,000 in Tractor Supply right now?

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tractor Supply. The Motley Fool has a disclosure policy.