Genuine Parts Company is a Good Stock for Dividend Portfolio

Genuine Parts Company (NYSE: GPC) has a long history of returning significant cash to investors in the form of dividends and share buybacks. It has paid a quarterly dividend every year since 1948, and the company has raised its quarterly dividend over the past 63 consecutive years. This year it has raised quarterly dividend by 6% to $0.76 per share, yielding close to 3%.

Source: SeekingAlpha

Dividend investors always like to invest in companies that have a long dividend growth history. In addition, sustainable financial growth along with strong future fundamentals makes Genuine Parts Company a solid play for dividend growth investors.

Genuine Parts Company is engaged in the distribution of automotive replacement parts, office products, industrial replacement parts, and electrical/electronic materials. Its strategy of investing in organic growth opportunities along with acquisitions is supporting financial growth.

GPC has generated sales growth of 15% in fiscal 2018 compared to 2017. Its earnings per share, however, grew at a much faster pace than revenue growth. Its earnings per share of $5.68 in fiscal 2018 increased substantially from earnings of $4.40 per share in 2017. With the significant revenue and earnings growth, its cash flows are also accelerating at a double-digit rate – allowing GPC to return massive cash to investors in the form of dividends and share buybacks.

Its CEO said, “We completed our first full year of operations in Europe and successfully combined EIS into Motion Industries to form a larger and stronger industrial business.  With these and other accomplishments, and our plans in place for the new year, we are well-positioned to further strengthen our global platform in 2019, driving long-term sustainable growth and significant value for our shareholders.”

GPC Genuine Parts Company daily Stock Chart

Source: Finviz.com

The company expects to make 2019 another record-breaking year. Its revenue and earnings are projected to increase at a sharp pace during 2019. Therefore, its cash returns appear safe and sound. Its financial growth and future prospects are helping in enhancing investor’s capital investments. Its share price rose 18% in the last twelve months amid prospects for its penetration in European markets and sustainable growth in financial numbers.

 

 

 

 

 

 

Genuine Parts Company: This Dividend Aristocrat is Perfect Stock for Dividend Growth Portfolio

Dividend investors have always been searching for stocks that offer sustainable growth in returns over the long term. Genuine Parts Company (NYSE: GPC) is among those stocks that have been returning the significant amount to investors in the form of dividends, share buybacks and share price appreciation. With the dividend growth history of 62 years, GPC looks like a solid inclusion to a dividend growth portfolio.

Source: Seekingalpha.com

The company currently offers a quarterly dividend of $0.72 per share, yielding around 3%. Its dividend growth is safe considering its potential to generate double-digit revenue and earnings growth. Strong cash flow generation potential has also been adding to its capacity of returning the significant amount to investors.

Genuine Parts Company complies with all the principles that dividend growth investors set before adding any stock to a dividend growth portfolio. These criteria include:

  1. Low payout ratio
  2. Sustainable financial growth
  3. Strong cash flow Generation
  4. Solid future fundamentals
  5. Low mid-single digit dividend yield

Smart Business Strategies are fueling Growth

The company has been aggressively expanding its business foot-prints both in developed and developing markets. It is investing in organic and non-organic growth opportunities to expand its market share and revenue base.

The auto parts company had acquired more than 20 small companies in the past few years that are aligning to its business model. Its recent acquisitions of Smith Auto and Sanel Auto Parts are performing well for the company. Its Hastings Auto Parts acquisition has significantly enhanced its penetration in the Detroit Metro area, and this acquisition will add almost $10 million in annual sales. The company says its accretive tuck-in acquisitions are adding to revenue growth prospects, and they are constantly perusing additional opportunities to expand footprints.

Financial Numbers are Increasing at Double-Digit Rate

Genuine Parts Company has been generating double-digit revenue and earnings growth, thanks to its acquisitions and investments in organic growth opportunities. Its revenue increased 15% year over year in the most recent quarter.

Its revenue grew 3% on a comparable basis while acquisitions added 12% to growth to overall revenues in the most recent quarter.

Besides from revenue growth, its management’s strategy of investing high margin areas along with the focus on operational efficiencies is permitting it to generate significant earnings per share growth. The company generated year over year earnings per share growth of 38% in the latest quarter.

Mr. Donahue, the President, and Chief Executive Officer said, “We enter the fourth quarter of 2018 with positive momentum and plans for continued sales and earnings growth.  We remain focused on the further strengthening of our core sales growth, maximizing the benefits of our acquisitions and improving our operating results to enhance our long-term sales and profit outlook further.  As always, we will support these initiatives with a strong balance sheet and continued strong cash flows.”

Cash flow generation, on the other hand, offers a complete cover to dividend payments and capital required for the business expansion plan. It has generated $444 million in operating cash flow in the latest quarter compared to capital expenditure of $27 million and acquisition payments of $71 million. Thus, the company was left with $346 million in free cash flow – which was enough to cover dividend payments of $106 million. In fact, the huge gap in free cash flows and dividend payments offers a room for more dividend hikes in coming days.

Investment Thesis

Genuine Parts Company is complying with the criteria that dividend growth investor generally sets for adding any stock to their portfolio. In addition, its stock offers an attractive buying opportunity for long-term investors. The company’s sustainable financial numbers and aggressive growth strategy has also been supporting its valuations. Its stock trades at 19 times to earnings and 0.8 times to sales compared to the industry average of 61 times and 2.4 times, respectively. Therefore, buying and holding this stock for the long-term would help investors in maximizing total returns from their dividend growth portfolio.