Friday, October 1, 2010

Stock Analysis: Genuine Parts Company (GPC)

Genuine Parts Company (GPC) distributes automotive replacement parts, industrial replacement parts, office products, and electrical/electronic materials in the United States, Puerto Rico, Canada, and Mexico. The company operates in four segments: Automotive Parts Group, Industrial Parts Group, Office Products Group, and Electrical/Electronic Materials Group. This dividend king has increased distributions for 54 consecutive years.

Over the past decade, this dividend stock has delivered an annual total return of 11.40%.

At the same time earnings per share have increased only by 1.40% per year since 2000. For 2010 analysts expect an increase in EPS by 12.80% to $2.82. For FY 2011 analysts expect the company to earn $3.15/share, which would represent an increase of 11.70% in comparison with the results in FY 2010.

Dividends per share increased by 4.20% on average since the year 2000. A 4% growth in dividends translates into dividend payments doubling every 18 years. Since 1987 the company has manage to double its quarterly dividend every eleven and a half years on average.

The dividend payout ratio has remained above 50% in six of the past ten years. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

The return on equity has remained above 16% with the exception of 2001. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

Currently the company trades at a P/E of 16, yields 3.80% and has a dividend payout ratio of 60%. Given the low growth in dividends and earnings over the past decade, I would have to require a higher current yield and a lower dividend payout ratio before initiating a position in the stock. I would initiate a small position in the stock provided that it trades below $41, and the payout ratio is lower than 60%.

Full Disclosure: None

Relevant Articles:

- Ten Dividend Kings raising dividends for over 50 years
- Where are the original Dividend Aristocrats now?
- Buy and hold dividend investing is not dead
- Dividend ETF or Dividend Stocks?

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