Insights

1 Unstoppable Dividend King You’ve Never Heard Of

Car parts specialist Genuine Parts (NYSE: GPC) is best known for its NAPA brand of replacement auto parts. The company has a long history of executing its steady-Eddie business and increasing its dividend. In fact, it is the second-longest-tenured Dividend King.

Can Genuine Parts keep the growth of its payout to investors going?

Image source: Getty Images.

A consistency of growth allows for a king’s ransom

Genuine Parts sells replacement car parts that drivers need to maintain their cars and get them back on the road when they break down. Cars are critical for getting folks to work, picking up groceries, and getting kids to soccer practice. Fortunately for Genuine Parts, cars are not like fine wine; they deteriorate with age. Whether you take your vehicle to the shop or fix it yourself, the company’s products get cars up and running again.

Genuine Parts’ revenue mix is about 20% do-it-yourselfers and 80% repair shops or do-it-for-me operations. The majority do-it-for-me business is a car part distribution segment that sells to repair shops. Its network includes 162 distribution centers around the world that feed its 9,494 stores located closer to its repair shop customers.

The company has done an impressive job of making acquisitions that add geographic locations and additional products to its expansive network. Since 2013, Genuine Parts has made four tuck-in acquisitions that have allowed the company to get more unique parts to more customers around the world. The term “network effect” is typically reserved for high-flying tech companies, but Genuine Parts has demonstrated its ability to add value for its customers through its distribution network.

For instance, since 2011, revenue has increased at a 6% compound annual growth rate. Over that same time, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) has compounded by 8% per year. The critical nature of Genuine Parts’ products and its consistency are what has allowed it to increase its dividend for 66 years straight.

To get on the exclusive Dividend Kings List, a company must be in the S&P 500 index and not only pay but increase its dividend annually for at least 50 consecutive years. Genuine Parts passed that mark more than a decade and a half ago. Today, the stock pays a dividend yield of 2.5%.

The change in the dividend has been accelerated in recent years. GPC Dividend data by YCharts

Is an even more exclusive dividend list needed?

The good news for investors is that as long as drivers use cars, Genuine Parts will be in business and have the ability to continue increasing its dividend. In 2022, the company boosted its annual dividend by 10% to $3.58 per share. For the year, Genuine Parts predicts adjusted earnings per share of $7.70 to $7.85, providing ample cushion to pay its dividend (its payout ratio is 50.4%). With plenty of room to continue raising its dividend and a steadily growing business, Genuine Parts could continue its dividend track record. At some point, the company may push for a moniker beyond Dividend King.

BJ Cook has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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