Stock Market Sell-Off: 1 Dividend Growth Stock Down 16% to Buy Right Now After Its Pullback

There's just no way around it: Market sell-offs are unpleasant. However, the silver lining I always try to find amid any significant pullback is that many of my favorite stocks inevitably go on sale.

While these discounts are particularly tough on growth stocks with premium valuations, a handful of steady-Eddie dividend stocks also tend to get caught up in the volatility.

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A perfect example of that in the current market sell-off is Murphy USA (NYSE: MUSA), the fourth-largest convenience store (c-store) chain in the United States.

Beautifully boring (in a good way), Murphy USA has become an 11-bagger for investors since its debut on the market in 2013. However, despite its stable operations and history of beating the market, the c-store chain has seen its shares tumble 22% compared to the S&P 500's (SNPINDEX: ^GSPC) 8% decline at this writing.

Following this oversized pullback, here are four reasons I believe Murphy USA is a spectacular dividend growth stock to buy amid the market's sell-off.

1. Slow and steady wins the race

Despite being down 22% from its highs in late 2024 following less-than-perfect earnings in February and a volatile market, Murphy USA's actual operations look more robust than ever. Home to more than 1,760 c-stores across 27 states, Murphy serves roughly 2 million customers daily.

Focused on providing low prices, it is fitting that the majority of the company's stores sit adjacent to Walmart locations, thanks to a past partnership. While a low-price c-store chain may not sound like the investment opportunity of an investor's dreams, Murphy's vast scale and unique geographic footprint leave it positioned for years of outperformance potential.

As of 2023, single-store owners operated roughly 60% of c-stores in the U.S. Simply put, these owners cannot match Murphy's cost per gallon of fuel. This cost leadership gives the company an advantage over the competition with price-conscious shoppers, who already typically flock to Walmart stores for its prices.

Furthermore, while the U.S. has only grown fuel gallons sold by 4% annually since 2013, the states where Murphy operates have experienced 7% growth. Best yet, Murphy has grown its gallons sold by 14% annually since 2013 -- doubling the increase in the states where it operates. This outsize growth shows that the company's focus resonates with consumers, and that Murphy is steadily gaining market share in the region.

While management has expressed no interest in expanding beyond the 27 states where it operates, it plans to open 50 "new to industry" stores annually and convert 30 kiosk stores into larger formats each year. This 4% annualized store count growth, combined with Murphy's rising gross profit margins (5% in 2013 to 11% today) and the company's massive stock buyback program, create immense potential for shareholders.

2. Declining share count

Perhaps the most significant driver of Murphy's success over the last decade has been management's focus on buying back as many shares of the company as possible. Since 2013, the company has lowered its outstanding shares by 57%.

Buybacks this large are beneficial to investors, as they juice all of Murphy's per-share figures. For instance, Murphy has more than quadrupled its free cash flow (FCF) over the last decade. However, its FCF per share has spiked tenfold.

MUSA Free Cash Flow and FCF per share data by YCharts

Furthermore, by consistently using its ample FCF to buy back shares, management capitalizes on Murphy's typically submarket valuation, especially amid pullbacks.

3. A submarket valuation despite historical outperformance

While Murphy USA isn't the most exciting stock in the world, the fact that it continues to trade at a deep discount to the S&P 500's average valuation despite thoroughly stomping the index is peculiar.

Currently, the company trades at 23 times FCF, whereas the S&P 500's average price-to-FCF (P/FCF) ratio is somewhere around 32.

MUSA Price to Free Cash Flow data by YCharts

And this relatively cheap valuation is after Murphy's P/FCF ratio roughly doubled from a few years ago.

Here's where things get even more interesting, though: If Murphy didn't spend heavily on capital expenditures (capex) to build new stores (which lowers its FCF totals) and only spent on maintenance capex, it would trade at a minuscule 12 times FCF.

While Murphy wouldn't actually sacrifice new store growth to do this, it nonetheless highlights how cheaply the company's valuation would be if it only focused on generating FCF rather than growing.

4. Murphy USA has nearly doubled its dividend since 2021

Now for the cherry on top for investors. Despite Murphy's heavy share repurchases and steady spending on growing its store count, the company has increased its dividend for 12 consecutive quarters and has nearly doubled its payments since 2021.

While the current dividend yield of 0.4% may seem diminutive, it only uses 9% of Murphy's FCF and should easily continue to grow at an above-average rate for years to come. This quickly increasing dividend is another way for Murphy to reward its shareholders and offers an alternative to stock buybacks if the company's valuation ever becomes lofty (but that seems a long way off).

Overall, Murphy USA is a staple goods provider that generates consistent cash flows year after year. With roughly half of this cash going to new store growth and the other half going to shareholders via stock buybacks at submarket valuations and a growing dividend, the company should continue generating a lot of shareholder value.

Murphy USA is already one of my core holdings, and I look forward to buying more of this shareholder-friendly stock soon.

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Josh Kohn-Lindquist has positions in Murphy USA. The Motley Fool has positions in and recommends Walmart. The Motley Fool recommends Murphy USA. The Motley Fool has a disclosure policy.