We recently compiled a list of the 14 Best Large Cap Dividend Growth Stocks To Buy Now. In this article, we are going to take a look at where Tractor Supply Company (NASDAQ:TSCO) stands against the other large cap dividend growth stocks.
Investors continue to favor large-cap stocks, as these companies often serve as the foundation of popular index funds and are well-known among both seasoned professionals and casual traders. Moreover, large-cap firms have demonstrated their ability to withstand economic uncertainty, thanks to their strong market presence and substantial cash reserves, which help them weather financial downturns with relative ease. For the second consecutive year in 2024, US large-cap stocks outpaced cash, bonds, and international equities, securing the top spot in market performance.
Also read: 12 Best International Dividend Stocks To Buy Now
A Morningstar report revealed that over the 10-year period ending June 30, 2024, large-cap stocks have outperformed small-cap stocks by an average of more than 6 percentage points annually. This disparity stems from differences in sector exposure—small-cap benchmarks have a lower concentration of technology stocks and a greater presence in traditional industries like consumer cyclicals, financials, real estate, and industrials. Although economic growth has been robust, these sectors have struggled to match the pace set by technology-related stocks.
In addition, according to JPMorgan Wealth Management, large-cap stocks play a key role in driving long-term capital appreciation for investors. Over the 10-year period from 2013 to March 2023, large-cap stocks delivered a total return of 162%, outperforming mid-cap and small-cap stocks, which posted returns of 139% and 108%, respectively.
Large-cap stocks demonstrate their resilience through their ability to increase dividends even in times of market distress. Several leading companies have maintained decades-long streaks of dividend growth, weathering major economic crises such as the 2008 recession and the 2020 pandemic. A report by T. Rowe Price highlighted that large-cap firms with a track record of consistent dividend increases have shown relative strength during downturns, suffering smaller losses than the broader market. In addition, these companies have often outperformed during periods of market stagnation and have participated in a substantial share of gains during bull markets.
Dividend growth is a key factor when evaluating dividend stocks, as companies that consistently raise their payouts have historically outperformed those that do not. A report by RMB Capital found that between 1972 and 2018, companies that initiated or grew their dividends achieved an average annual return of 9.62%, significantly surpassing the 2.40% return of non-dividend-paying firms. Even the broader market, with a 7.30% return, lagged behind dividend growers. The report also emphasized that companies with a strong history of dividend increases have not only sustained but expanded their payouts, even during economic downturns. From a portfolio perspective, dividend growth stocks provide solid diversification, as they are spread across multiple industries. This offers an advantage over high-yield portfolios, which tend to be concentrated in mature sectors like utilities and, prior to 2007, financials.
Analysts recommend incorporating dividend stocks into income portfolios, especially as several major tech companies have adopted dividend policies this year. With robust cash flows, these firms are well-positioned to maintain and expand their dividend payouts over time. Given this, we will take a look at some of the best large-cap dividend growth stocks.
Our Methodology:
For this list, we first used a stock screener to identify large-cap dividend stocks with market capitalization above $10 billion. From that list, we shortlisted stocks that have 5-year average dividend growth rates of above 10%. The stocks are ranked in ascending order of their dividend growth rates.
At Insider Monkey, we are obsessed with hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
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Tractor Supply Company (NASDAQ:TSCO)
5-Year Average Annual Dividend Growth Rate: 26.47%
Tractor Supply Company (NASDAQ:TSCO) is a Tennessee-based farm supplies company that sells home improvement and related equipment and supplies. The company recently acquired Allivet, a pet pharmacy business, expanding its reach in the pet care industry. With over 200 pet stores under the Petsense brand and pet supplies available at its Tractor Supply locations, this acquisition offers an additional growth opportunity for the company, even though growth may be gradual. In the past year, the stock has surged by over 18%.
In the fourth quarter of 2024, Tractor Supply Company (NASDAQ:TSCO) reported net sales of approximately $3.8 billion, reflecting a 3% year-over-year increase. This growth was driven by new store openings and a rise in comparable store sales. Earnings per share (EPS) for the quarter were $0.44, a slight 3% decrease from the previous year. However, both net sales and EPS fell slightly short of expectations. Gross profit grew by 2.8%, reaching $1.33 billion, up from $1.29 billion in the same quarter last year.
Tractor Supply Company (NASDAQ:TSCO)’s cash position also remained strong. The company ended the quarter with about $252 million available in cash and cash equivalents. In FY24, it generated $1.4 billion in operating cash flow. This cash position enabled the company to pay $472.5 million worth of dividends to shareholders in 2024. It currently offers a quarterly dividend of $1.10 per share and has a dividend yield of 1.58%, as of February 12. TSCO is one of the best dividend stocks on our list as the company has been growing its payouts for 15 consecutive years.
Overall TSCO ranks 1st on our list of the best large cap dividend growth stocks to buy. While we acknowledge the potential for TSCO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TSCO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.