Genuine Parts Dividend Stock Analysis
The last time I checked, there were a lot of cars on the road. Furthermore, the average age of those cars is increasing. Consequently, more older cars on the road means growing demand for auto parts. So let’s take a look at one of my favorite companies in this sector.
Above all, please join me for a dividend deep dive of The Genuine Parts Company (GPC). Certainly I will have some thoughts on the Genuine Parts dividend, dividend growth and more.
COMPANY BACKGROUND
Genuine Parts Company was founded in 1928. They are a service organization. And engage in the distribution of automotive replacement parts, industrial replacement parts and business products. GPC is organized around 3 business groups.
- The Automotive Parts Group is the largest. They distribute automotive replacement parts, accessory items, and service items throughout North America and Europe. In North America, they sell under the NAPA brand name.
- The Industrial Parts Group operates under the name Motion Industries. Motion sells more than 7.1 million industrial replacement parts and materials. Furthermore, they serve customers in all types of industries throughout North America.
- The Business Products Group operates under the name S.P. Richards Company. They distribute more than 98,000 office products to over 9,700 re-sellers and distributors throughout United States and Canada.
GENUINE PARTS DIVIDEND YIELD
Genuine Parts pays an annual forward dividend of $2.88 cents per share. As a result, this provides a 2.9% Genuine Parts dividend yield at the recent price of $100 per share.
COMPOUND ANNUAL DIVIDEND GROWTH RATE
| 1 Year | 3 Years | 5 Years | 7 Years |
| 6.6% | 5.4% | 9.9% | 7.0% |
First of all, dividend growth has been steady. Also, the Genuine Parts dividend has been increased for 62 consecutive years.
Therefore, the Genuine Parts dividend increase streak is one of the longest on record! Companies that have increased their dividends annually for at least 50 consecutive years are known as Dividend Kings!
REVENUE
Revenue has grown consistently during recent years. Furthermore, the company is projecting 13-14% revenue growth in 2018.
Above all, the 2018 revenue growth is a result of last years acquisition of Alliance Automotive Group. Alliance is a leading European distributor of vehicle parts, tools, and workshop equipment.
Even more, the company’s long term revenue gains are supported by strategic acquisitions, market share gains and overall economic growth.
GENUINE PARTS DIVIDEND, EARNINGS AND PAYOUT RATIO
Earnings growth stalled from 2013 to 2017. However, 2018 earnings looks very strong. Because of revenue growth, cost synergies from recent acquisitions and lower income taxes.
Also, the dividend payout ratio has ranged between 50% and 60% in recent years. Finally, the 2018 dividend pay out ratio is projected to be about 52%.
The company plans to increase earnings per share annually by 7-10% over the long term. Therefore, I expect future annual dividend growth to be about the same. As a result, the dividend payout ratio should remain near its current level.
Above all, a lower dividend payout ratio is generally better for the investor. It shows the company has ample room to raise the dividend in coming years. Or, withstand an earnings drop with out having to reduce the dividend.
DEBT & THE BALANCE SHEET
Until last year, GPC had not borrowed large sums of money. However, they did increase their borrowings in 2017. Because of the Alliance Automotive Group acquisition.
GPC’s debt is held by a group of private financial institutions. Since GPC has no publicly held debt, they do not have a public credit rating. Above all, GPC’s debt load appears reasonable in relation to their profitability and capital structure.
VALUATION & CONCLUSION
Over the past several years, GPC’s stock price has traded in a range between $85 and $105 per share. Most recently, concerns over the disruptive effect Amazon could have on GPC’s business has weighed on the stock price.
However, solid earnings growth projected for 2018 has brought the forward price to earnings ratio down to a reasonable level at about 18 times. Most noteworthy, a lower price to earnings ratio typically represents a better value for the investor.
SUMMARY & WRAP UP
Because GPC’s stock price gains have been minimal in recent years, I believe the company represents a solid combination of current yield and future dividend growth at a reasonable price. Hence, GPC looks like a pretty good value to me at or below $96 per share. That purchase price equates to a 3% dividend yield.
GPC holds a mid size position in my portfolio. I will keep an eye out for price dips representing add on buying opportunities to increase my position over time.
OTHER RELATED ARTICLES
I hope you enjoyed this article. If so, here are a couple others that you may find interesting:
- The model portfolio where Genuine Parts resides: The Dividend Deluxe
- The process I use for dividend stock analysis: The Dividend Deep Dive
WHAT ARE YOUR COMMENTS?
Do you own GPC? What do you think of the company’s prospects? How old is your car? Leave a comment and let us all know!
BE SURE TO SUBSCRIBE
As part of your subscription to Dividends Diversify, you will get 20 wealth building and investment tips free! Also, never miss a new post. I will send a weekly email to all subscribers with a link to the current weeks new content. Thanks for visiting today!
Finally, are you a Pinterest user? Then be sure to follow Dividends Diversify on Pinterest by clicking this link: Pinterest Home Page. Then click the red follow button. And thanks for following!
Disclosure & Disclaimer
As of this writing, I am long GPC. First of all, this site is for educational and entertainment purposes only. Also, the information is not to be used as investment advice specific to your circumstances. Furthermore, consult your personal investment and/or tax advisers prior to investing money. Finally, please realize you are solely responsible for any investment gains or losses as a result of the investments you enter into. Most noteworthy, you can find additional information under this site’s disclaimer tab: Disclaimer & Privacy Policy.
DivvyDad says
October 1, 2018 at 9:23 amGreat timing on this deep dive Tom, as GPC is on my watch list for October and I am in agreement with you on the target price. If we see that yield around the 3.0% level I will be looking to add.
With both my boys working on their cars all the time, I can tell you that they make more than their fair share of trips to the local NAPA store or the distribution center that is close by. Plus, the local high schools use NAPA to supply all the parts needed by the automotive classes.
Tom says
October 1, 2018 at 9:34 amInteresting perspective being that your family is a good customer DD. I on the other hand could only do damage to my Camry with a 140K miles by trying to work on it. Tom
Helen says
October 1, 2018 at 10:24 amHi Tom, I know NAPA stores, and saw their delivery cars on the roads, with that big bell-shape logo at the top of the car. This is the first time hearing about the Genuine Parts Company. My car is 9 years old, and I plan to drive another 9 years. Car maintenance is something I like to avoid but can’t.
To me, Napa also means the long cabbage sitting on shelves of the grocery stores, hehe. Have a great week!
Tom says
October 1, 2018 at 10:38 amHi Helen, Both our cars are 9 years old. Although I’m not sure I will get another 9 out of mine. Tom
Miguel (The Rich Miser) says
October 1, 2018 at 10:35 amHi Tom,
GPC sounds like a good investment, as long as they continue to operate a good business and don’t fall behind in terms of innovation. As we continue the long, probable transition to electric and self-driving cars, those will need parts, too.
Cheers,
Miguel
Tom says
October 1, 2018 at 10:40 amThat’s a good point about innovation Miguel. I hadn’t really thought about that. I have watched the company expand steadily from a geographic standpoint, but ultimately it comes down to having what the consumer needs and getting it to them efficiently. Tom
Kody says
October 1, 2018 at 8:17 pmGreat analysis of one of my favorite holdings. I feel pretty fortunate to have a cost basis of less than $84 a share on GPC as my YOC is near 3.5%. The Alliance Auto Group acquisition was a solid move into the European market. As Miguel said, I’d like to see the company continue to invest in innovating to serve the needs of customers not just today, but in the future as well.
Tom says
October 1, 2018 at 8:45 pmThat’s awesome Kody. I haven’t checked my cost basis lately, but I am a long time holder as well. Tom
GYM says
October 2, 2018 at 2:10 amI don’t have GPC nor have I heard of it, but it really sounds very promising from your analysis! I have heard of Napa autoparts and have also heard of Napa cabbage as per Helen’s comment. 🙂
Tom says
October 2, 2018 at 6:24 amI’d never heard of Napa cabbage until these comments. I do like cabbage though. Tom
Reverse The Crush says
October 2, 2018 at 7:51 amThanks for the analysis of GPC, Tom. I don’t own this stock but it sounds like the perfect type of company for dividend growth investors. It’s slow and steady dividend growth, and the industry is not so exciting like tech or a new industry. Since I tend to invest in industries I personally use and understand, I probably would not invest in this one. I live in a big city and do not currently own a car. Thanks for sharing.
Tom says
October 2, 2018 at 8:02 amHey RTC. Thanks for your thoughts. Good for you not owning a car. That’s a great option in a big city if you can pull it off. One less thing to maintain and worry about and can be so costly in an urban environment. Tom
Caroline says
October 2, 2018 at 8:42 amAnother great analysis Tom.
I never heard of them either…or the cabbage:)
Tom says
October 2, 2018 at 9:16 amHead over to the grocery store in your auto and pick some up would be my recommendation. It’s a great stock too, but I know some of the the issues of a Canadian investing in US stocks. Tom
BrokeInvestor says
October 3, 2018 at 4:38 amHi DD,
Thanks for a simple and clear analysis! I was thinking about GPC as well, as it’s quite common in dividend investors’ portfolios and seems to be a good fit. However, I am not rushing in and am a little bit skeptical about the future of the company in ~10 years. I read a few extensive articles in “The Economist” and “Bloomberg” where they make a point that the car industry is going to change a lot. I think it makes sense that in a growing sharing economy there will be more Uber-like self-driving cars at some point and people will own less personal cars. Also, the electric vehicles have much less parts, as far as I know, so they should need less maintenance but I am not an expert so I cannot give my word for it 🙂
P.S. I drive a 9-year-old car at the moment and maintenance costs are minimal at least for the moment.
-BI
Tom says
October 3, 2018 at 10:37 amHey BI. Thanks for the insightful comments. You bring out some very interesting thoughts about the long term. This industry could go through a lot of disruption as you say impacting the future profitability of the company. Some issues to keep an eye on for sure. Tom
Mr. Robot says
October 7, 2018 at 10:04 amAlways a pleasure reading your deep d(r)ives Tom! I’m with BI on this one. The days that a car was a status symbol and had a deep personal connection with the owner are slowly but surely ending. With AI, autonomous cars and the sharing economy growing it’s only a matter of time that the industry will be changing a lot. If GPC recognizes this it could also be their growth market. Who knows what the future holds for them then…
Tom says
October 7, 2018 at 11:14 amInteresting perspective. I’m just not sure, but I’m also not much of a visionary. I agree that cars really are not a status symbol for most people and that’s why the average age of cars on the road is older which drives demand for parts. How AI and shared rides/cars will impact the need for car parts is much less clear to me. Tom
Dividend Diplomats says
October 7, 2018 at 12:56 pmGreat, thorough analysis here Tom. I like it a lot. That is very solid dividend growth for a company that has a solid 3% yield. I’ve always liked the company and their business model. Over the years I’ve always looked to purchase shares; however, their valuation is slightly higher than I would like. But as I wait, the valuation remains at its level. When it finally drops and trades at a discount, I”ll run to scoop up shares.
Thanks again.
Bert
Tom says
October 7, 2018 at 1:18 pmSounds like an excellent plan Bert. I figured you and Lanny had kicked this one around a few times. Hopefully you will find a good buying opportunity to get in at the right value. Tom
Dividend Daze says
October 9, 2018 at 2:18 pmI like GPC. Almost bought them a little while back while they were down but missed the chance. I am sure the opportunity will come back eventually. They are a sold long term hold in any portfolio. Nice write up.
Tom says
October 9, 2018 at 2:23 pmThanks Daze. Hope you get another good opportunity to get in at the right price. I had a lot of comments by folks that are concerned with this industry’s future prospects, but I still think GPC is a good investment. Tom