A cyclical business may not appear to be the ideal place to find sustainable dividends, but given the payout record of Genuine Parts (GPC), it’s naïve to gloss over the company on that assumption alone. The Atlanta-based company is currently yielding 3.79% in annual dividends.
Genuine Parts Company (GPC) is a service organization engaged in the distribution of automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials. The company conducts business throughout the United States, in Canada and in Mexico from approximately 2,000 locations. The Company's Automotive Parts Group operates 58 NAPA Distribution Centers in the United States distributed among eight geographic divisions. Approximately 90% of the distribution center properties are owned by the Company. At end 2009, the Company operated approximately 1,000 National Automotive Parts Association (NAPA) AUTO PARTS stores located in 43 states, and the Company owned either a non-controlling or controlling interest in approximately 19 additional auto parts stores and three distribution centers located in five states. The company employs about 29,000 people.
Net income at the company has fluctuated in a 20% band since 2005, culminating in a profit of $400 million in 2009. This is compared to a profit of $437 million and $475 million in 2005 and 2008 respectively. Despite this fluctuation, the company has increased dividends in each of the last five years. The dividend has increased by 28% over this period, from $1.25 to $1.60, for a compound annual increase of 6.36%. This is a not to be overlooked achievement for a company whose earnings have stayed pretty much flat.
The reason for the increases in and affordability of these dividends is directly related to the cash generative nature of the business. While earnings came in at $400 million in 2009, cash generated from operations was a huge $845 million. This is up by 59% on 2008 mainly due to a big release in working capital. Regardless the company has generated on average more cash from operations than net income for the past five years, in a ratio of 1.26 times.
This then explains the PE ratio of 16.8 times as compared to the price to cash flow ratio of 13.71 times. The price to sales ratio is also attractive at only 0.67 times. With a net profit margin four times the industry average it’s no wonder the company is throwing off large amount of cash. The balance sheet shows a total debt to total capital ratio of 15% and a current ratio of 2.86 times, emphasizing the financial strength of the company.
Genuine Parts (GPC) has historically paid out 50% of earnings in the form of dividends, however this increased to about 66% in 2009 as the company maintained its growth in dividends despite marginally lower earnings.
As long as people need to get around they are going to need cars, and with cars come maintenance and repair costs, and parts. Genuine Parts is a very able player in the market, with a strong earnings profile, a tasty dividend, and a conservatively financed balance sheet.
Other dividend paying stock articles:
Add your Comment
or use your BestCashCow account