1 Top Dividend Stock to Buy Now for a Lifetime of Passive Income

Buying more of a winning stock is one of the hardest things to do in investing. This notion is especially true when the stock's valuation has risen alongside its price.

However, investors should avoid anchoring to the original purchase price and valuation of their winning investment. Saying we shouldn't add to a winning stock until it hits a "reasonable" valuation is a phenomenal way to miss out on multibagger stocks that keep chugging along over time (looking at you, Costco Wholesale).

One company that currently has me fighting this psychological battle is Casey's General Stores (NASDAQ: CASY), which my daughter and I made a core holding in her portfolio two years ago. Since buying Casey's, the stock has nearly doubled -- which is great -- but its price-to-earnings ratio (P/E) has also grown from 18 to 28, leaving me hesitant to add more.

Nevertheless, after listening to the company's recent investor event, four specific reasons have me feeling optimistic that Casey's (the third-largest convenience store and fifth-largest pizza chain in the United States) can live up to its new valuation.

Here's what makes Casey a great candidate to add to your portfolio for a lifetime of passive income.

Image source: Getty Images.

A potential Dividend King in the making

Home to over 2,600 locations, Casey's has increased its dividend payments for 25 consecutive years as it expanded throughout the Midwest and South. As impressive as this run has been, Casey's brightest days may still be ahead for the following four reasons, which could propel the company to Dividend King status over the long haul.

1. Consistent (and accelerating) growth

Powered by its steady expansion throughout the Midwest, Casey's is one of three S&P 500 and S&P 400 retail stocks that has delivered earnings before interest, taxes, depreciation, and amortization (EBITDA) growth of 8% or more annually over the last one, five, and 10 years.

Image Source: Casey's Investor Day presentation. EBITDA = earnings before interest, taxes, depreciation, and amortization.

Though much of this growth stems from store count growth -- going from 1,800 stores in 2014 to over 2,674 today -- Caseys has also improved its EBITDA margin from 4.7% to 7.2% over the same time. The company has been laser-focused on its higher-margin prepared food operations, including its popular pizza as well as numerous private-label offerings.

This has helped Casey's to become a steady growth machine.While the 8% EBITDA growth mentioned in the chart above is impressive on its own merit, the company's growth has accelerated to 14% annually over the last three years, making its higher valuation more palatable.

2. Massive store count growth potential

CEO Darren Rebelez has been encouraged about Casey's vast store count growth potential, thanks in part to its recent $1.1 billion acquisition of Fikes Wholesale. Primarily operating in Texas, Fikes's 198 CEFCO convenience stores provide a likely beachhead for Casey's expansion plans into the Southern state.

To put this potential in perspective, Rebelez noted that since Iowa currently has 550 Casey's stores and Texas has 10 times the population of Iowa, Casey's could one day have many more locations in the Lone Star state -- perhaps not 5,500, he said, but at least 1,000 as it expands through the Midwest.

3. The electric vehicle transition won't kill Casey's

One popular argument against buying Casey's is that the electric vehicle (EV) revolution could make the company's gas stations unnecessary. I don't believe this will be the case, however, with three-quarters of the company's transactions coming from non-fuel purchases.

By taking a page out of Walmart's playbook and focusing on expanding into small towns where it acts as the cornerstone enterprise, Casey's has grown to become much more than a fuel provider to its communities. Furthermore, if the EV transition happens to occur in the blink of an eye somehow, I'm confident in management's ability to convert to charging stations wherever necessary.

4. Casey's well-funded dividend

Thanks to Casey's consistent earnings growth, its undeniable store-count development possibilities, and its ability to avoid operational disruption, Casey's is beautifully positioned to become a Dividend King in 2049. Furthermore, even though the company has raised its dividend payments by 9% annually over the last decade, its 0.5% dividend yield uses only a minuscule 13% of Casey's net income.

This diminutive payout ratio of 13% leaves a copious amount of room for dividend increases far into the future, especially considering the company's track record of top-tier earnings growth consistency.

Is buying Casey's today justified?

Trading at 28 times earnings (nearly an all-time high), Casey's shares sport the same valuation as the S&P 500. However, the company trades at only 15 times cash from operations (CFO), which makes investing at today's prices seem much more reasonable.

CFO shows roughly how much cash Casey's would generate if it (theoretically) decided to stop expanding and solely focus on being as profitable as possible with its existing store base. To compare just how cheap this price-to-CFO valuation looks, consider that Walmart trades at 19 times CFO despite (in my opinion) having a much less compelling growth story ahead of it.

Thanks to this reasonable valuation and the four promising reasons to own the company listed here, I'm happy to add to my daughter's winning position in Casey's -- hopefully setting her up for a lifetime of passive income in the process.

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Josh Kohn-Lindquist has positions in Casey's General Stores and Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool recommends Casey's General Stores. The Motley Fool has a disclosure policy.