The folks at Dividend.com Premium ($149/yr) pitch a new favorite dividend growth stock every now and then, and this time around it’s an “Amazon proof” retailer… which always perks up the ears a little bit. So what are they hinting at?

Here’s the lead-in to their spiel:

“While the pandemic changed plenty about our society, arguably one of the biggest changes has come to how we shop. As we quarantined and stayed at home, omnichannel and online retailing was pushed into the forefront. Those stores that got it right saw their profits, revenues, and shareholder rewards surge during the pandemic.”

That turned out to actually be a lot of big retailers, I think one of the surprises of the pandemic was how quickly the best national retail brands pivoted to curbside service and delivery and virtual shopping… but yes, I’m sure some did it better than others. Which one does Dividend.com particularly like?

Here’s another clue:

“Our pick has already made a name for itself as an ‘Amazon-proof’ retailer featuring items that can’t be easily ordered online and shipped. But thanks to new tech-upgrades, our pick continued to expand during the pandemic and was able to pivot to a successful ‘click & mortar’ machine. In fact, overall net sales jumped 23% during the year.”

OK, so that “too big to ship” designation hasn’t protected companies as much as I would have predicted a decade ago, not with the huge success of online furniture sellers like Wayfair… but it’s true that some retailers really are more stubbornly “in person,” including those who sell big and heavy stuff. What other hints do they drop?

“Sales for the first quarter of this year have already increased by more than 40% on a year-over-year basis. Adding its new business lines in the fast-growing pet-care sector, and you have a recipe for further growth and gains.”

OK, so it’s going after our Chewy (CHWY)? Uh oh, them’s fightin’ words. I guess more than one retailer noticed that every American was required to adopt a new pet during the pandemic. And teach them to star in TikTok videos.

That narrows down our search a bit… but can we squeeze out a few more clues?

As luck would have it, yep… here’s what we get:

“rural market niche….

“30% dividend increase at the start of the year….

And since this is Dividend.com, they drop some more detail on that last key point — we’re told that this stock has a “healthy payout ratio of 28%”, which would generally mean that the dividend eats up 28% of their net income, and that the dividend yield is currently about 1.15% (this was a few days ago, but it’s probably still in that neighborhood).

So what’s the answer, pray tell? Thinkolator sez we’re being teased about Tractor Supply (TSCO).

Which is, oddly enough, a stock I’ve never looked at before… even though it’s been a great “regional to national” growth story for a long time, and there’s one not too far from my house. They’ve had a surge of growth as Americans have taken their pandemic time to become mini-farmers, I’ve never seen so many loose chickens roaming around our little city, and that meant they were not just Amazon-proof but were actually almost immediately a beneficiary of the pandemic. More time at home means you can plant that garden, raise those chickens, move out to the weekend farm for the year if you’re in that tax bracket, and, if you’re anything like me, spend your pandemic downtime doing projects that make no financial sense (I made my family lay sod last year to replace our faltering lawn, and have not yet been forgiven for the work that entailed… this year I’m focusing on growing some tomatoes, despite the fact that I’ve always had a fine talent for buying fruit and vegetables from professionals and can claim no green thumb skills whatsoever, and I expect my average cost per tomato, if I’m lucky enough to harvest them before the squirrels and raccoons, will probably come in well above $10).

But anyway, yes, Tractor Supply started out as effectively a competitor for Agway and local farm supply stores, proving that we can “big box” any concept in retail, but it now calls itself a “rural lifestyle retailer.” And yes, they are also gunning for Chewy and PetSmart and Petco with their own “small box” pet retail concept, called Petsense… here’s how they describe themselves these days:

“Tractor Supply Company, the largest rural lifestyle retailer in the United States, has been passionate about serving its unique niche, targeting the needs of recreational farmers, ranchers and all those who enjoy living the rural lifestyle, for more than 80 years.

“Tractor Supply offers an extensive mix of products necessary to care for home, land, pets and animals with a focus on product localization, exclusive brands and legendary customer service for the Out Here lifestyle. With more than 42,000 Team Members, the Company’s physical store assets, combined with its digital capabilities, offer customers the convenience of purchasing products they need anytime, anywhere and any way they choose at the everyday low prices they deserve. At March 27, 2021, the Company operated 1,944 Tractor Supply stores in 49 states and an e-commerce website at www.TractorSupply.com.

“Tractor Supply Company also owns and operates Petsense, a small-box pet specialty supply retailer focused on meeting the needs of pet owners, primarily in small and mid-size communities, and offering a variety of pet products and services. At March 27, 2021, the Company operated 177 Petsense stores in 23 states.”

How do the financials look? Pretty good, actually — their revenue has been trucking along at about a 10% growth rate for a long time, but it surged higher by about 40% last year. That drove the stock price up as well, naturally, so the big question for investors is along the lines of, “was that a one-time growth spurt, or will reopening and stimulus bring another surge this year?”

I don’t know, of course, but analysts are being pretty cautious — they have TSCO penciled in for 10% growth in revenue this year, back to the trend it was on for the several years pre-pandemic, and their strong first quarter led to some upgraded estimates for earnings so we’re now led to expect $7.37 in earnings per share this year… but a pretty tepid pace of growth from there, with earnings growth between 5-10% a year.

If the analysts are right, this is a tough spot to buy TSCO — ~25X earnings is a premium valuation to pay for a company that’s expected to grow profits at a below-average 6-8% a year. I love the steadiness of the earnings growth and the revenue growth, and particularly am impressed with the strong dividend growth, and it may well work out over time as they grow into that valuation, but to be excited about TSCO here you probably have to buy into the idea that Wall Street is again underestimating rural America — that may be true, and maybe all those work-from-home folks who moved to the rural exurbs or to hobby farms last year will stay “country” for longer than we think, but I’d want to be a little more sure before I bought at this price.

They do have a lot of potential to keep expanding if they like, particularly if the Petsense concept gets some traction with customers, not least because they are attracted to the small towns that most of the big non-Walmart retailers avoid… but that’s a steep price we’re paying for the company right now, and I think it really assumes that TSCO will be both a pandemic winner and a reopening winner, which is possible but tough to get your head around. Really, the “story” bet here is that the invigoration of the “small farmer” economy last year drove TSCO higher, and that the stimulus money and return to in-person retail will give it another bump, but at some point there’s probably a limited demand for their products.

If you want a reason to buy, then dividend growth is it — the dividend per share has doubled over the past five years… and whaddya know, as so often happens, the share price has doubled along with it. It took a pandemic for the share price to catch up with those dividends, but those shareholder payouts do have a way of drawing the share price higher with them sometimes… this is what that looks like, charging dividend per share against the share price for TSCO over the past five years:

And if you go back to TSCO’s IPO, in 2010, that dividend growth seems even more like destiny — even though that dividend yield has almost always been close to 1%, only really getting above 1.5% during the weakest moments of 2017, and wouldn’t normally be the kind of income that you’d think would drive a stock price:

So yes, dividend growth is a big deal, and even a small dividend that grows strongly is a pretty solid signal of health and growth potential. But still, I can’t talk myself into buying TSCO at this price.

Importantly, this quarter we’re in right now, second quarter planting and gardening and chick-hatching season, is the equivalent of Christmas shopping season for Tractor Supply, by far the most important period in TSCO’s calendar, twice as important as every other quarter of the year… so whatever they announce about Q2 will drive the whole story for 2021 — that update should come in the third week of July, I don’t think they’ve announced an earnings date yet.

Great company, wish I’d thought to buy it last March, but a little too rich for my blood right now.

But it’s not my blood we’re measuring here, it’s yours — I don’t get to decide what you should buy or sell, so does Tractor Supply plump your pullets? Have other dividend growth stories you think we should look into? Let us know with a comment below… and thanks for reading!

Disclosure: Of the stocks mentioned above, I own shares of and/or call options on Amazon.com and Chewy. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.