1 Magnificent Dividend Stock to Buy Right Now as It Soars to New All-Time Highs

In 2022, my daughter and I bought shares of Iowa-based convenience store (c-store) and pizza chain Casey's General Stores (NASDAQ: CASY) to add to her custodial account.

Luckily enough, Casey's has more than doubled in value since and is now my daughter's largest holding.

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However, rather than adhering to the traditional investing adage of "buy low, sell high," I'm planning to add some more Casey's shares to her portfolio soon.

Preferring instead to trust in the maxim of "winners keep winning," here are four reasons I believe Casey's could continue soaring -- even as it continues to trade near all-time highs already.

Casey's General Stores: The quiet outperformer from Iowa

Home to over 2,900 locations across the Midwest, Casey's is now the third-largest c-store and fifth-largest pizza chain in the United States. Focusing primarily on small towns with a population of less than 20,000 people, Casey's shops often act as the cornerstone eatery for many of the easy-to-miss communities it serves.

Using this playbook, Casey's has generated incredible total returns over the years, rising:

• 32% over the last year
• 203% in the previous five years
• more than fivefold across the previous decade
• 5,220% since 2000
• 47,280% since its initial public offering in 1983

To put this last bullet point in context: Casey's is a 473-bagger -- meaning that a $100 investment in the company's shares in 1983 would be worth $47,380 today.

However, despite these incredible returns, the future could be just as bright for the beloved company.

Plenty of greenfield opportunities

Although Casey's has nearly doubled its store count since 2010, its expansion potential remains vast. Roughly half of the company's stores exist in just three states: Iowa, Illinois, and Missouri.

Casey's currently operates in (and has distribution centers that can serve) 20 states, meaning that there is a long runway for growth ahead for the company as it adds new locations in these other 17 states.

In fact, management believes that roughly 75% of towns with a population between 500 and 20,000 people (within its distribution centers' reach) still don't have a Casey's. Said another way, the company has a long way to go before it would theoretically "overbuild" within the existing geographies it serves.

Best yet for investors, management has shown an appetite for expanding beyond these 20 states as well, using mergers and acquisitions (M&A) recently to tiptoe into valuable new markets such as Texas, Tennessee, and Florida.

Image source: Getty Images.

Building through (and upon) acquisitions

Not only do these M&A deals move Casey's into new areas, but they also tend to be immediately accretive to earnings thanks to the company's recently formed M&A team.

This M&A team typically looks for smaller c-store chains where they can integrate the Casey's kitchen "know-how." By adding new (or upgrading subpar) kitchen capabilities, Casey's typically boosts these newly acquired stores' inside sales by 20% and their earnings before interest, taxes, depreciation, and amortization (EBITDA) by 70%.

Since Casey's prepared food and beverage sales have a high gross margin of 58%, the added kitchen capabilities help the company generate a 15% return on investment on the average store it acquires and integrates into its model.

Best yet, many of Casey's more recent acquisitions have been in larger cities than those it historically served. Yet the company's cash return on invested capital (ROIC) has continued to climb, showing that it seems to be succeeding in bigger cities.

CASY Cash Return on Capital Invested (CROCI) (TTM) data by YCharts

Should this figure continue rising -- and Casey's continues to report success in bigger markets -- its store count expansion potential could be massive.

Immense dividend potential

Though Casey's may only pay a 0.5% dividend yield, its dividend potential should not be ignored. First off, despite raising its dividend annually for 25 consecutive years, the company's payouts currently only use 13% of its net income.

Management could theoretically spike its dividend yield to 3% and still have net income left over. However, it doesn't want to do this, considering it would rather use its excess earnings on its expansion plans.

Even as Casey's grew its store count over the last 25 years, an investor who bought shares in 2000 and held until today would now receive a 20% dividend yield compared to their original cost basis. This shows the power of buying and holding dividend growers like Casey's.

With management expecting EBITDA to grow by 8% to 10% over the long term, while maintaining a payout ratio between 15% and 20%, double-digit dividend growth could be on the horizon for investors.

Why it's still OK to buy near all-time highs

There's no way to sugarcoat it, Casey's trades at a loftier valuation now than it normally does.

CASY Price to CFO Per Share (TTM) data by YCharts

However, I don't believe this is simply an overvaluation from the market. Instead, I think the market has taken note of Casey's store count expansion story and the fact that the company has grown its net income by 19% annually over the last decade.

While this price-to-CFO (cash from operations) ratio of 16 is higher than usual for Casey's, it isn't outrageous compared to the broader market. For instance, if Casey's gave up on all of its growth ambitions and only spent money on maintenance capital expenditures, it would trade at around 18 to 20 times free cash flow (FCF).

This is a hefty discount to the S&P 500's average price-to-FCF ratio, which is somewhere closer to 30. Obviously, we don't want Casey's to quit spending on growth, but I wanted to give this comparison to show its relatively cheap valuation compared to the broader market.

As Casey's continues to steadily march across the U.S. and raise its dividend annually -- all at a sub-market valuation -- I'm perfectly happy to add to my daughter's winning position, even with shares back near all-time highs.

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Josh Kohn-Lindquist has positions in Casey's General Stores. The Motley Fool recommends Casey's General Stores. The Motley Fool has a disclosure policy.