Updated on October 23rd, 2024 by Felix Martinez
A company must have a long track record of generating steady dividend growth, even during recessions, to become a dividend king. This is far from an easy task, which makes it all the more impressive.
It should be no surprise that we consider the Dividend Kings to be among the highest-quality dividend stocks in the entire stock market.
Wit this in mind, we created a full list of all 53 Dividend Kings, along with important financial metrics such as dividend yields, payout ratios, and price-to-earnings ratios. You can download the full list by clicking on the link below:
Genuine Parts Company (GPC) has increased its dividend for 68 consecutive years, giving it one of the longest streaks of annual dividend raises in the entire stock market. It has achieved this growth with a top brand in an industry that has seen consistent growth over many years. There remains a clear path ahead for continued growth particularly as vehicles age.
Genuine Parts stock appears slightly undervalued at the present time, shares offer a yield above the market average, and a high likelihood of continued dividend hikes for many years, in addition to a robust growth forecast.
Business Overview
Genuine Parts traces its roots back to 1928, when Carlyle Fraser purchased Motor Parts Depot for $40,000. He renamed it, Genuine Parts Company. The original Genuine Parts store had annual sales of just $75,000, and only 6 employees.
Today, Genuine Parts has the world’s largest global auto parts network, with more than 10,800 locations worldwide. As a major distributor of automotive and industrial parts, Genuine Parts generates annual revenue of nearly $23 billion.
Source: Investor Presentation
It operates two segments, which are automotive (includes the NAPA brand) and the industrial parts group which sells industrial replacement parts to MRO (maintenance, repair, and operations) and OEM (original equipment manufacturer) customers. Customers are derived from a wide range of segments, including food and beverage, metals and mining, oil and gas, and health care.
The company reported its third-quarter 2024 results, with sales reaching $6.0 billion, a 2.5% increase from the previous year. However, net income fell to $227 million, or $1.62 per diluted share, down from $351 million in Q3 2023. Adjusted diluted earnings per share (EPS) also decreased to $1.88 compared to $2.49 last year. This decline was driven by weakness in Europe and GPC’s Industrial segment, despite a positive impact from acquisitions and an additional selling day in the U.S. market.
Growth Prospects
Genuine Parts is primed for success, as the environment for auto replacement parts is highly supportive of growth. Consumers are holding onto their cars longer and are increasingly making minor repairs to keep cars on the road for longer, rather than buying new cars.
As the average costs of vehicle repair increase as a car ages, this directly benefits Genuine Parts. As newer vehicles become increasingly expensive, customers are more likely to keep older cars for longer.
According to Genuine Parts, vehicles aged six years or older now represent the majority of cars on the road, which bodes very well for Genuine Parts. In addition, the total addressable market for automotive aftermarket products and services and industry products is very large and fragmented, which leaves plenty of opportunity for expansion.
Source: Investor Presentation
Genuine Parts has a sizable portion of the $200 billion and growing automotive aftermarket business. One specific way Genuine Parts has captured market share in this space has historically been through acquisitions.
Genuine Parts frequently acquires smaller companies in the U.S. and international markets to boost market share in existing categories or expand into new areas. Over the course of its history, Genuine Parts has made several acquisitions.
Source: Investor Presentation
These acquisitions have helped lead to earnings growth in each of the last 10 years. For example, Genuine Parts acquired Alliance Automotive Group for $2 billion. Alliance is a European distributor of vehicle parts, tools, and workshop equipment.
This was an attractive acquisition, as Alliance Automotive holds a top 3 market share position in Europe’s largest automotive aftermarkets: the U.K., France, and Germany. The deal added $1.7 billion of annual revenue to Genuine Parts, along with additional earnings growth potential from cost synergies.
In 2018, Genuine Parts agreed to acquire Hennig Fahrzeugteile, a Germany-based supplier of light and commercial vehicle parts. The acquisition expanded Genuine Parts’ reach in Europe, and also gave it further exposure to the commercial market. Genuine Parts expects the acquired company will boost its annual sales by $190 million.
More recently, Genuine Parts has made several acquisitions that should strengthen the company’s leadership position in several different markets. In 2019, Genuine Parts completed its acquisition of PartsPoint, a leading distributor of automotive aftermarket parts and accessories based in the Netherlands.
The company completed its purchase of leading industrial distributor Inenco in 2019. Inenco has operations in Australia, New Zealand and Indonesia. Later that month, Genuine Parts announced it was adding Todd Group, a leader in the heavy-duty aftermarket segment in France.
Overall, Genuine Parts’ multiple acquisitions have clearly helped the company generate long-term growth. The results of Genuine Parts’ growth strategy speak for themselves. While we don’t know what acquisitions may be on the horizon, even without them in 2022, comparable sales are driving strong growth.
Genuine Parts divested its S.P. Richards US operations and its Safety Zone and Impact Products operations. It continues to optimize its portfolio to focus on its core automotive and industrial parts businesses. We expect Genuine Parts to generate 7% annual earnings-per-share growth over the next five years.
Competitive Advantages & Recession Performance
The biggest challenge facing the economy continues to be supply chain issues stemming from the pandemic, but while the economy recovers, Genuine Parts’ results are improving as well. Thus far, Genuine Parts seems not to be heavily impacted by these issues.
The other threat to physical retailers is e-commerce competition, but automotive parts retailers such as NAPA are not exposed to this risk. Automotive repairs are often complex, challenging tasks. NAPA is a leading brand, thanks in part to its reputation for quality products and service. It is valuable for customers to be able to ask questions to qualified staff, which gives Genuine Parts a competitive advantage.
Genuine Parts has a leadership position across its businesses. All of its operating segments represent the #1 or #2 brand in its respective category. This leads to a strong brand, and steady demand from customers.
Genuine Parts’ earnings-per-share during the Great Recession are below:
- 2007 earnings-per-share of $2.98
- 2008 earnings-per-share of $2.92 (2.0% decline)
- 2009 earnings-per-share of $2.50 (14% decline)
- 2010 earnings-per-share of $3.00 (20% increase)
Earnings-per-share declined significantly in 2009, which should come as no surprise. Consumers tend to tighten their belts when the economy enters a downturn.
That said, Genuine Parts remained highly profitable throughout the recession and returned to growth in 2010 and beyond. The company also generated cash flow during the coronavirus pandemic, which allowed it to raise its dividend in 2020.
Given their consumable nature, there has always been a certain level of demand for automotive parts, which gives Genuine Parts’ earnings a high floor.
Valuation & Expected Returns
Based on our expected earnings-per-share of $8.10 for 2024, Genuine Parts has a price-to-earnings ratio of 14.1. Our fair value estimate for Genuine Parts is a price-to-earnings ratio of 17.0. As a result, Genuine Parts appears undervalued at the present time. An expanding valuation multiple would positively impact future returns to the tune of 4.3% per year over the next five years. Fortunately, Genuine Parts’ total returns will also include earnings growth and dividends.
We expect Genuine Parts to grow its earnings-per-share by 7% annually over the next five years. The stock has a 3.5% current yield, which is significantly higher than the average yield of the S&P 500 Index. Furthermore, Genuine Parts raises its dividend each year, including a 5% increase in 2024. Genuine Parts Company’s dividend growth streak now stands at 68 consecutive years.
Genuine Parts has a highly sustainable dividend. The company has paid a dividend every year since it went public in 1948. The dividend is likely to continue growing for many years to come. That said, investors should also consider the impact of valuation when it comes to a stock’s total returns.
Based on our outlook for the next half-decade, Genuine Parts’ total annual returns would consist of the following:
- 7% earnings growth
- 3.5% dividend yield
- 4.3% multiple expansion
In total, Genuine Parts is expected to offer a total annual return of 14.8% through 2029.
Final Thoughts
Genuine Parts has a long history of steady growth, as it has benefited from rising demand for automotive parts. The aging vehicle fleet in the U.S. should provide continued growth moving forward. In the meantime, shareholders should receive annual dividend increases as has been the case for 68 consecutive years.
While we find the stock undervalued, meaning now may be the ideal time to buy Genuine Parts. Still, Genuine Parts has a solid dividend yield of 3.5% and offers annual dividend increases, making it a worthwhile holding for income-focused investors.
Additional Reading
The following databases of stocks contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors.
- The Dividend Aristocrats List: S&P 500 stocks with 25+ years of dividend increases.
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500. - The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Best DRIP Stocks: The top 15 Dividend Aristocrats with no-fee dividend reinvestment plans.
- The High ROIC Stocks List: The top 10 stocks with high returns on invested capital.
- The High Beta Stocks List: The 100 stocks in the S&P 500 Index with the highest beta.
- The Low Beta Stocks List: The 100 stocks in the S&P 500 Index with the lowest beta.
- The Complete List of Russell 2000 Stocks
- The Complete List of NASDAQ-100 Stocks