Genuine Parts has a long dividend history and it might make a great addition to an income portfolio. Let’s take a look at the business, dividend history, and payout safety going forward.
Business Overview and Highlights
Genuine Parts (NYSE: GPC) is a $15 billion business. The company is based out of Atlanta, GA and it employs 48,000 people. Last year Genuine Parts pulled in $19 billion in sales and that works out to $390,000 per employee.
Genuine Parts distributes automotive replacement parts, industrial replacement parts, office products, and electronic materials.
The company’s board of directors announced a quarterly cash dividend of $0.76 per share on April 22, 2019. The dividend is payable July 1 to shareholders of record by close of business on June 7.
On May 22, 2019 Genuine Parts announced that it will acquire 65% of Inenco Group headquartered in Sydney, Australia. The acquisition is expected to close on July 1, 2019.
10-Year Dividend History
The company paid investors $1.6 per share a decade ago. Over the last 10 years, the dividend has climbed to $2.88. That’s an 80% increase and you can see the annual changes below…
The compound annual growth is 6.1% over 10 years… but over the last year, the dividend climbed 6.7%. The increase in dividend growth is a good sign. Genuine Parts might work out as a great income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Genuine Parts’ long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital and we’ll look at that soon.
The dividend yield comes in at 3.05% and that’s below the 10-year average of 3.6%. The chart below shows the dividend yield over the last 10 years…
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that every $1 Genuine Parts earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety… but accountants can manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here is Genuine Parts’ payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and the trend is up. In 2017 the reported a lower net income which meant less free cash flow and a higher payout ratio. The last year shows a payout ratio of 46.3%. This gives wiggle room for Genuine Parts Company’s board of directors to raise the dividend.
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