Welcome to this series where I will be reviewing all the Dividend Kings and providing an overview and valuation calculation on the companies. Dividend Kings are a rare breed of Dividend Growth Companies. These companies have managed to raise their dividend for 50 or more years consecutively. Through all types of market swings, economic trouble, wars, recessions, these companies have seen it all and continue to reward shareholders with rising dividend income.
This week’s entry will focus on:
GPC – Genuine Parts Company
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Overview
Genuine Parts Company distributes automotive replacement parts and industrial parts and materials. It operates through two segments:
Automotive Parts Group – automotive replacement parts for hybrid and electric vehicles, trucks, SUVs, buses, motorcycles, recreational vehicles, farm vehicles, small engines, farm equipment, marine equipment, and heavy duty equipment.
Industrial Parts Group – industrial replacement parts and related supplies, such as bearings, mechanical and electrical power transmission products, industrial automation and robotics, hoses, hydraulic and pneumatic components, industrial and safety supplies, and material handling products for original equipment manufacturers. This group also provides maintenance, repair, and operation customers in equipment and machinery, food and beverage, forest product, primary metal, pulp and paper, mining, automotive, oil and gas, petrochemical, pharmaceutical, power generation, alternative energy, governments, transportation, ports, and other industries.
The company was incorporated in 1928 and is headquartered in Atlanta, Georgia.
(Source: Company Website)
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Metrics:
Dividend Amount: $3.58
Dividend Yield: 2.59%
5 Year Dividend CAGR: 5.81%
Dividend Payout Ratio: 55.42%
Years of Dividend Increases: 67 Years
P/E: 16.24
Analyst 5 Year Earnings Growth Estimate: 4.60%
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Valuation:
Current Price: $138.11 (7/7/22)
DCF (10% RRR): $93.02
P/E Mean Reversion:$119.64
Dividend Yield Theory: $121.36
Average of the three: $111.34
Analyst 1 year Price Target: $140.78
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Commentary:
Genuine Parts Company (GPC) is a global parts distributor for automotive and industrial use cases. The company operates under various brands throughout the world, but here in the U.S. their most recognized name is NAPA Auto Parts. They have over 5,900 stores in the U.S. Other brands internationally include UAP in Canada, Alliance Automotive Group in Europe, and Repco and Motion in the Australasian markets.
GPC has raised its dividend for 67 years, which is one of the longest dividend growth streaks for U.S. companies. The consistency of this dividend growth is impressive when considering all the market volatility, recessions, wars, and societal changes during that long history. The current yield at 2.59% and their 5 year dividend CAGR is 5.81%. This dividend CAGR is in line with the company’s projected earnings growth. The payout ratio is reasonable and leaves room for increases over time as the company’s earnings grow.
The company’s revenue and net income has generally been up over the past 5 years with the exception of 2020 with the global health crisis. The stock has increased 58.57% over the past 5 years, compared to the S&P’s return of 60.41%, closely mirroring the index. Over the past year the stock is up 7.10% compared to the S&P being down 10.72%.
GPC is a stable company and tends to perform well during recessions. The worst yearly returns for GPC since 1994 was -23.13% compared to the S&P’s worst year of -36.81%. This is impressive for a consumer discretionary stock. The company does appear to be overvalued at this time. The current dividend and dividend growth is lower than my required investment criteria and I do not have a large allocation to the consumer discretionary sector due to the volatility, but this stock has generally kept up with the overall market returns and has a dividend approximately 2 times that of the market. The consistency and length of dividend payments shows that this may be a good option for the consumer discretionary part of your portfolio.
Disclosure: I do not own shares of GPC.