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Tractor Supply Stock Still Looks Like a Buy, Even After Jumping 15% Already This Year

With the S&P 500 hitting record highs this week, it's becoming increasingly difficult to find attractive stocks to buy. Many stocks simply look either fully valued or overvalued. But a close look reveals that there are still some stocks worth buying -- even after their recent run-up.

One stock that still looks attractive despite already rising 15% this year is Tractor Supply (NASDAQ: TSCO). Sure, the dividend-paying stock may not provide investors with eye-popping returns from here. But the returns the rural lifestyle retailer's stock could potentially deliver going forward will likely be good relative to the underlying risk taken to achieve them. In other words, Tractor Supply's overall risk-to-reward profile continues to look very attractive.

Here are three reasons investors might want to consider adding Tractor Supply to their portfolios.

Resilience

One of the top things to love about Tractor Supply stock is the resilient nature of its underlying business.

"Tractor Supply has a proven business model that has been resilient over many business cycles," explained Tractor Supply CEO Hal Lawton in the company's first-quarter earnings release. This is largely due to its business's heavy reliance on what it calls its CUE (consumable, usable, and edible) products. This needs-based merchandise includes items like livestock feed and bedding, weed control, and fertilizer -- products consumers have to restock regularly.

With well over half of its sales coming from C.U.E. categories, Tractor Supply's business is likely to be more resilient than many other retailers during a recession.

Dividend growth

Unsurprisingly, Tractor Supply's resilient business model has enabled it to consistently pay dividends to investors for years. Indeed, the company initiated a quarterly dividend back in 2010, and it's been paying one ever since. Further, management has raised this dividend every year for 14 consecutive years.

Also worth noting is how strong the company's dividend growth has been. Tractor Supply's quarterly dividend today of $1.10 is more than double what it was paying shareholders just three years ago.

Looking ahead, strong dividend growth should persist. This should be supported by both further growth in the business and a low payout ratio. Today, Tractor Supply pays out only about 41% of its earnings in dividends, leaving plenty of room for continued increases in the years ahead.

A long runway

Fortunately for investors, Tractor Supply's store footprint has a lot of runway for growth. Today, the company has 2,233 stores in 49 states. But management recently said it believes there's an opportunity for around 3,000 stores domestically. This would represent a footprint growth of about 34%.

And the retailer isn't sitting on its laurels. It plans to open 80 new stores in 2024 and then 90 new stores in 2025. At this rate, Tractor Supply could hit its target of 3,000 stores as early as 2032.

With shares trading at just 27 times trailing-12-month earnings, investors can buy into this resilient growth story at a reasonable price. Investors will even get access to a growing dividend, which is currently yielding 1.6%.

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 recommends Tractor Supply. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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