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Tractor Supply Company (NASDAQ:TSCO) Passed Our Checks, And It's About To Pay A US$1.03 Dividend

Tractor Supply Company (NASDAQ:TSCO) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Tractor Supply's shares on or after the 26th of May, you won't be eligible to receive the dividend, when it is paid on the 13th of June.

The company's next dividend payment will be US$1.03 per share, and in the last 12 months, the company paid a total of US$4.12 per share. Looking at the last 12 months of distributions, Tractor Supply has a trailing yield of approximately 1.8% on its current stock price of $224.23. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Tractor Supply

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Tractor Supply's payout ratio is modest, at just 39% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (84%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Tractor Supply has grown its earnings rapidly, up 24% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Tractor Supply has delivered 26% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Tractor Supply worth buying for its dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Tractor Supply, and we would prioritise taking a closer look at it.

While it's tempting to invest in Tractor Supply for the dividends alone, you should always be mindful of the risks involved. For example, we've found 3 warning signs for Tractor Supply (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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