Dividend Kings In Focus: Genuine Parts

Genuine Parts Company (GPC) has increased its dividend for over 60 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.

While Genuine Parts stock appears overvalued at the present time, shares offer a yield above 3% and a high likelihood of continue dividend hikes for many years.

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 10,500 locations worldwide. Genuine Parts generated nearly $20 billion of revenue in 2019 and has a current market capitalization of $13.8 billion. Genuine Parts is a distributor of automotive replacement parts, industrial replacement parts, office products, and electrical materials.

Source: Investor Presentation, slide 2.

It operates four segments, led by automotive parts, which houses the NAPA brand. The industrial parts group 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 office products segment distributes business products in the U.S. and Canada. Customers include office products dealers, office supply stores, college bookstores, office furniture dealers, and more. Genuine Parts also distributes electrical and electronic materials to original equipment manufacturers and industrial assembly firms.

Genuine Parts reported third-quarter earnings on 7/30/20 and the impact from COVID-19 was felt on both the top and bottom-line. Revenue decreased 22.5% to $3.8 billion due to social distancing restrictions and the closing of non-essential businesses in many regions of the world. Comparable sales, which measures sales at retail stores open at least one year, was lower by almost 14% from the same quarter a year ago. Currency translation was a 0.6% headwind to results.

The core Automotive business fell 10.1%, though acquisitions were a 3.2% benefit to results.  Revenues for the Industrial parts business declined 21.1%, or 10.2% excluding the divestiture of the company’s Electrical Specialties Group.  Adjusted earnings-per-share decreased 16% to $1.32, though this was $0.40 higher than expected.

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