Genuine Parts Company: 64 Years of Dividend Increases and Still Going Strong
A Dividend Stock Investors Can Count on
If you are an income investor, you probably won’t find the automotive industry all that attractive at the moment. The reason is simple: auto sales are cyclical. When things are good, automakers can enjoy soaring sales and profits. But in hard times—like what we are living in right now with the COVID-19 pandemic—an automaker’s business may plummet, meaning its dividends would be in jeopardy.
For instance, both General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) decided to suspend their dividend policies after the economy got hit by the pandemic.
Still, there is at least one company in the automotive industry that is capable of serving income investors even during the toughest times.
I’m talking about Genuine Parts Company (NYSE:GPC). It has been providing reliable dividends for decades.
The first thing to note about this company is that it’s not an automaker. In fact, it does not even make any auto parts. Instead, it’s a distributor of automotive replacement parts and industrial parts. Headquartered in Atlanta, GPC has more than 3,100 operations located throughout the U.S., Canada, the U.K., Mexico, Australia, New Zealand, Singapore, Indonesia, France, Germany, and Poland. (Source: “Investor Services,” Genuine Parts Company, last accessed August 12, 2020.)
Due to the nature of its business, Genuine Parts does not make headlines as often as companies that actually build cars. But as I said, GPC stock stands out due to its dividend policy.
Consider this: since Genuine Parts completed its initial public offering in 1948, it has paid a dividend every single year. More impressively, the company has been paying increasing dividends every year for 64 consecutive years. (Source: “Dividends,” Genuine Parts Company, last accessed August 12, 2020.)
Just think about that for a second. The world economy has had plenty of ups and downs over the past six decades. Yet, in every one of those years, Genuine Parts Company stock investors received a bigger payout than before. Normally, this kind of track record is found in more defensive industries like consumer staples. The fact that an automotive parts distributor can deliver decades-long dividend growth is truly impressive.
Of course, being a reliable dividend growth stock does not mean it’s immune to market volatility. The U.S. stock market had a massive sell-off earlier this year, and GPC stock plunged along with it. Even though the company’s shares have bounced back quite a bit, they are yet to make a full recovery. At the time of this writing, Genuine Parts Company stock is down almost eight percent year-to-date.
Due to its reliable dividend policy, GPC stock was always sought after, meaning it hasn’t really been a high yielder. But because of the inverse relationship between dividend yield and stock price, the tumble in Genuine Parts Company stock this year caused its yield to go up a bit. Trading at $96.07 apiece, the company offers an annual dividend yield of 3.3%.
Of course, past performance does not guarantee future results. In order for Genuine Parts to keep paying dividends, it needs to keep earning profits. And since we are in an unprecedented economic environment, it’s worth checking out how the company is doing financially.
In the second quarter of 2020, it generated $3.8 billion in sales, which represented a 14.2% decline year-over-year. Excluding divestitures, net sales from continuing operations decreased 10.1% year-over-year. (Source: “Genuine Parts Company Reports Second Quarter 2020 Results,” Genuine Parts Company, July 30, 2020.)
Excluding non-recurring items, the company’s adjusted net income from continuing operations came in at $1.32 per share. While the amount was down 10.2% from a year ago, it was more than enough to cover the $0.79-per-share dividend that GPC declared during the quarter.
Looking ahead, management will not be issuing any financial outlook until the macroeconomic conditions stabilize. However, in the company’s latest earnings conference call, GPC’s Chief Financial Officer Carol Yancey said, “[W]e will continue to support the dividend, which we have increased for 64 consecutive years.” (Source: “Genuine Parts Co (GPC) CEO Paul Donahue on Q2 2020 Results – Earnings Call Transcript,” Seeking Alpha, July 30, 2020.)
Bottom Line on Genuine Parts Company
At the end of the day, don’t forget that, as cars get older, they’ll need more replacement parts. And if new car sales are down due to a recession, people will be driving old cars longer. That is, Genuine Parts Company’s auto replacement part distribution business may actually benefit from such a scenario.
Bottom line: the automotive industry might be in the doldrums, but investors can still count on the dividend payments from GPC stock.