As someone that’s toyed with the idea of a slower and more rural lifestyle, Tractor Supply Company (NASDAQ:NASDAQ:TSCO) is a business that I would expect to spend a lot of my time and money at.
At the end of FY 2021, Tractor Supply operated 2,003 Tractor Supply stores as well as 178 Petsense stores. Compare that to the 1,187 Tractor Supply stores as of the end of FY 2012 and you can easily see that growth has been very strong. Total store count is up 85% over that time.
TSCO Store Count 2021 Annual Report (FY 2021 Annual Report)
Tractor Supply focuses on rural and exurban locales with a niche market centered on recreational farmers and ranchers. The smaller target markets allow Tractor Supply to execute on their goal of providing excellent customer service. Most areas will generally support similar demands from their customers, i.e., cattle ranching, horses…, which allows Tractor Supply to better customize their product offerings for the needs of their clients.
Additionally, focusing on rural/exurban markets allows Tractor Supply to carry smaller stores by square feet, which helps to keep competitors at bay. It’s similar to Dollar General’s (DG) focus on similar markets where the local population doesn’t support the big-box retail competitors.
While the last couple of years have hurt many retail storefronts, especially those that are in more direct competition with Amazon (AMZN), Tractor Supply has navigated the uncertainty very well. Total sales rose by over 50% from FY 2021 compared to FY 2019, which suggests that their target markets haven’t been affected.
Tractor Supply has had some truly eye-popping dividend growth, with the most recent increase coming in at 77% and previous raises being 30.0%, 14%, 13% and 15%.
Dividends, and subsequently dividend growth, are one of the surest and most reliable ways for a business to tell its shareholders that the business is doing well. While I typically aim for companies that are closer to the “sweet spot” for dividend growth investors, i.e., initial yields in the 2.5% – 4.0% range with annual dividend growth in the 7% to 10% area, I also understand the importance of holding some of the lower yielding but faster-growing businesses that can provide a higher total return opportunity.