This Company's Raised Dividends For 59 Years... And Counting

Josh Sparrow's picture

Wednesday, March 25, 2015 - 1:30pm

by Josh Sparrow

There are 253 million cars and trucks driving along U.S. roads. And the average age of those automobiles is roughly 11.4 years old, according to a recent study by IHS Automotive, a leading auto industry research firm. 

That bodes well for companies offering replacement parts and services on the population's aging vehicles. And growth investors buying shares of these companies have reaped serious rewards in the past. 

But if you're an income investor, then you may have noticed that the biggest players in the industry don't exactly offer much of what you're looking for. 

Leading firms Advance Auto Parts, Inc. (NYSE: AAP) and AutoZone, Inc. (NYSE: AZO) offer close to nothing in the way of dividend yields -- 0.2% and 0.0%, respectively. 

Genuine Parts Co. (NYSE: GPC), however, which sells its parts and accessory items through more than 6,000 NAPA Auto Parts stores nationwide, pays a healthy 2.6% dividend yield. 

Now I know what you're thinking: a 2.6% yield is nothing to write home about. But as history as shown, shareholders of this company can expect that dividend to keep growing. 

That's because GPC is a member of a group of top dividend payers known as the Dividend Aristocrats. These are companies that have raised their dividend payments annually for at least 25 consecutive years. 

And even in an elite group such as this, GPC ranks near the top of the class. The firm is tied for the third-longest active streak with 59 consecutive years of dividend growth. Over the last five years alone, the company boosted its dividend by 50%. 

That sort of growth is expected when a company is firing on all cylinders. GPC has managed to increase its revenue, as well as its net income, every year since 2009. 

The company's earnings-per-share, or EPS, has grown 85% in the past five years, to $4.61 per share in 2014 from $2.50 a share in 2009. That's an impressive feat considering the company's share count dropped by less than 4% over the same period. (This means GPC didn't buy back massive amounts of its own stock just to bolster its EPS.)

Now it's important to note GPC's auto segment does account for 53% of the company's net sales. But the firm also operates in several other business segments as well, including industrial parts replacement, office products and electrical/electronic materials. 

                                                                               
And net sales for each of these business segments saw a boost in fiscal 2014 -- a positive sign that the company is still growing. 

 

  Fiscal 2013 Net Sales Fiscal 2014 Net Sales % Growth
Automotive $7.5 billion $8.1 billion 8%
Industrial $4.4 billion $4.8 billion 9%
Office Products $1.6 billion $1.8 billion 12%
Electrical $569 million $739 million 30%
Source: GPC Annual Reports

One downside to any potential surge in GPC's share price, however, is that new advancements in auto manufacturing are allowing today's cars and trucks to last longer than they ever have before. And higher quality manufacturing could mean less necessary expenses for regular maintenance. 

But even if the company's automotive segment were to slow down a bit, GPC operates three other growing business units capable of picking up the slack. And for income investors, that's a great thing. 

That's because over the last decade, GPC has boasted an average free cash flow of more than $690 million and an average payout ratio of 51.7%. And being that the company has raised its dividend every year for the past six decades, chances are those payouts will keep growing. 

In the past 10 years, GPC has increased its dividend by more than 96%, and by 193% over the last 20 years. 

GPC investors are seeing their dividends nearly double every decade, and buying shares now could deliver you an incredible yield down the road. 

Just think, today GPC's dividend sits at $2.46 per share, or a 2.6% yield. If you bought shares today at its most recent close price of $95.59, then in 10 years you could be sitting on a yield on cost of 5.2%.

Bottom line, if you're looking for triple digit gains over the next few years, then GPC probably isn't for you. But if you're looking for a rock solid company poised to deliver you consistent, growing dividends for years to come, there aren’t many better options than this elite dividend payer. 

Risks To Consider: Innovations in auto manufacturing means more consumers may opt for new cars, which would deliver a blow to GPC's NAPA stores. If the company's other segments don't see enough growth, then the company may be forced to dial back its payouts in the future. 

Action To Take --> GPC offers income investors a shot at consistent, growing dividends, as well as some capital gains potential. However, currently the stock is heavily overvalued and investors should wait for a pullback to buy shares at a more reasonable valuation. 

Recently, my colleague Nathan Slaughter made a surprising discovery. He discovered a special group of securities, which he calls "Hidden High Yielders," that are paying up to seven times more than what's report on popular websites like Yahoo! Finance or Morningstar. One company he found, for example, showed a 1.8% dividend yield, but in actuality it was really paying more than 11%. Nathan recently released a new report detailing this group of stocks and where you can find them. To access his report, click here

Josh Sparrow does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.