GPC has one of the strongest dividend track records of all public stocks.
Genuine Parts Company (GPC) has grown its dividend for 68 consecutive years and has paid dividends every year since it went public in 1948 (a total of 76 consecutive years).
This makes GPC one of only 53 “Dividend Kings” today, which are stocks that have increased their dividends for over 50 consecutive years.
Pair that with a history of strong returns on capital and increasing profit margins, and you’ve found a company with a high-quality business model.
Let’s determine whether $GPC is trading at a reasonable price today, or if it’s just too slow-growing to be a good investment.
The elephant in the room (slow sales growth)
We have to start by addressing the elephant in the room.
GPC’s historic revenue and EPS growth have been slow, so it’s not the perfect stock pick.
Analysts expect Genuine Parts Company to see even slower revenue growth going forward.
Over the past 5 years, Genuine Parts Company has had fair revenue growth, with a 4.3% revenue CAGR. Over the next 5 years, analysts expect the company to see a 3.5% revenue CAGR:
GPC’s past revenue growth really isn’t winning any awards:
- Last Fiscal Year: 4.5% YoY growth
- Last 3 Years: 11.8% CAGR
- Last 5 Years: 4.3% CAGR
- Last 10 Years: 5.1% CAGR
See GPC’s full growth analysis >>>
Analysts expect Genuine Parts Company to see low single-digit revenue growth going forward:
- Next Year: 1.9% YoY growth
- Next 3 Years: 3.6% CAGR
- Next 5 Years: 3.5% CAGR
See GPC’s full analyst estimates >>>
We place a heavy emphasis on revenue growth because revenue growth tends to drive earnings growth, which is ultimately one of the biggest drivers of shareholder value.
When you consider that the long-term inflation rate in the US is about 3%, it starts to put things in perspective that 1-3% revenue growth is pretty slow.
The good news is that a slow-growing stock like $GPC can still be a good investment if you can buy it for less than what it’s worth.
For example, Walmart (WMT) only saw a 4.1% revenue CAGR over the past 5 years (pretty low), yet it outpaced the market with an 89.8% price return over this time, which is a 13.9% compound annual return. This also doesn’t include the returns from Walmart’s dividend.
You also have to consider that many investors might pick a slow-grower like $GPC because of the dividend they’ll receive and the quality of the underlying business.
GPC’s turbocharged dividend
Today, GPC stock has a 2.6% dividend yield due to its $3.90 annual dividend paid to shareholders in the last 12 months.
The company has also increased its dividend to shareholders for 68 consecutive years.
What’s most impressive about GPC’s dividend is that it still has just a 44.4% payout ratio, despite paying its dividend for decades.
That means less than half of the company’s earnings-per-share is paid to shareholders as dividends, which means the dividend is safe and has room to grow.
This speaks to management’s prudence in growing the dividend to shareholders sustainably.
GPC has increased its dividend at a 5.5% CAGR over the past 5 years, and analysts expect the company to increase its dividend at a 6.5% CAGR over the next 5 years:
See analysts’ full dividend estimates >>>
GPC’s make and model
We look for businesses with a strong make and model, AKA strong financial safety and a high-quality business model.
GPC has strong financial safety, because the company has a low Net Debt/EBITDA and strong Interest Coverage ratio.
That means the company’s strong cash flows can adequately cover the company’s debt.
Some investors might be concerned that the company’s liabilities are three times greater than its shareholders’ equity.
But this isn’t a point of concern for us. In fact, did you know that Apple’s (AAPL) liabilities are nearly four times greater than its shareholder equity?
What matters is that companies have adequate cash flows to service their debt, and that the debt they do have is at low interest rates. In both cases, $GPC passes with flying colors.
Check out GPC’s full balance sheet analysis >>>
A high-quality business model
Looking for companies with strong margins and returns on capital can help you find businesses with top-notch, grade-A business models.
Genuine Parts Company’s operating margins have noticeably risen over the past 5 years, from 6.3% in 2018 to 7.8% in 2023, and analysts expect operating margins to reach 7.9% in 2028:
Operating margin growth shows that the business is becoming more profitable over time despite the market’s competitive forces.
GPC stock’s return on capital has seen small growth in the past 5 years, rising from 15.6% in 2018 to 17.9% in 2023:
We would ideally like to see 20% returns on capital for Genuine Parts Company to be a first-class stock to buy, but consistent, double-digit returns on capital are still impressive.
Return on capital is one of the primary drivers of shareholder value because it shows for every $1 invested in the business how much money the business makes in return.
Over a long enough time, the best businesses win. And the best businesses generally become the best because they are the most profitable in their industry.
Check out our full profitability analysis for $GPC >>>
Is GPC a buy?
The returns you make on an investment ultimately come down to the price you pay.
Today, GPC looks fairly valued. Analysts give GPC a consensus price target of $155, implying a 5.5% upside on shares.
Over the past 5 years, GPC has averaged a 4.4% upside from analysts’ price targets:
$GPC is trading 0.3% above its 5-year average NTM EV/Revenue.
What does that mean? GPC is right around fairly valued.
NTM EV/Revenue is one of our favorite metrics because it’s often more complete than common metrics like the P/E ratio.
The NTM EV/Revenue multiple looks at a company’s current enterprise value, which is the total capital invested in the business (Market Cap + Total Debt – Cash), and is divided by analysts’ consensus estimates for the company’s next twelve months’ revenue.
Basically, NTM EV/Revenue takes the business’s total value and divides it by expected revenue for the next 12 months. And GPC is trading right around its 5-year average:
Check out our full valuation analysis for $GPC >>>
The takeaway? It would probably be best to wait for GPC’s stock to dip a bit so that there is more of a discrepancy between its current price and estimated fair value.
Final Thoughts
They say that clichés are cliché because they’re true.
You’ve probably heard a million times that it’s “Better to buy a wonderful business at a good price than a good business at a wonderful price.”
The truth is, Dividend Kings with strong business models like $GPC rarely go on sale.
Genuine Parts Company has strong financial safety, a quality business model, and an excellent track record of paying dividends to investors.
$GPC is expected to see low revenue growth going forward, but this is already factored into the current share price.
There are high-quality, dividend-paying stocks out there, just like $GPC, that are revving their engines and getting ready for growth.
The TIKR Terminal offers industry-leading financial data on $GPC, $AAPL, $WMT and over 100,000 other stocks.
So if you’re looking to analyze and find the best stocks for your portfolio, you’ll want to use TIKR!
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. We aim to provide informative and engaging analysis to help empower individuals to make their own investment decisions. Neither TIKR nor our authors hold any positions in the stocks mentioned in this article. Thank you for reading, and happy investing!
