A rising dividend, but capital spending leaves it thin cover two years running. Tractor Supply pays $0.24 a quarter, $0.96 annualized, on a post-split basis (5-for-1 split in November 2024), raised every year on a split-adjusted basis with no cut. The caution is cover: dividends of $450 million are 78% of 2025 free cash flow of $580 million, in the review band, after 70% in 2024, because capital spending of $754 million absorbs most of operating cash flow. Leverage is 0.9x, a pass, but the thin cover grades the card warn.
Key risk: Heavy store and distribution-center spending eats most of operating cash flow, leaving the payout thin cover; a sales downturn would force a choice between the dividend and the build-out.
Changes if: Free-cash-flow payout falls below 60% for two straight years, or it crosses 80%.
- !Cash-flow cover 77.6% of FY2025 free cash flow, review band (60-80%), a caution; 70% in FY2024.
- ✓Leverage 0.9x net debt/EBITDA, pass (<3x).
- ✓Dividend history Raised every year on a split-adjusted basis; 5-for-1 split in 2024. No cut.
- ✓Trap screen Yield 3.04%, payout under 100% on cash flow, no cut; not a trap pattern.
What this grade doesn't say: It screens the dividend only — covered, real, compounding. It says nothing about valuation or price: a well-covered payer can still be overpriced, and its price can still fall.