Investing in businesses that typically log revenue and earnings growth is a recipe for success as a dividend investor. This is because such growth is also able to fuel rising passive income.
Having upped its payout for 67 years straight, Genuine Parts (GPC 0.50%) is one of the best among just 47 other stocks that comprise the list of Dividend Kings. But does the company have more dividend growth left in the tank? And is its stock a buy for income investors? Let's examine Genuine Parts' fundamentals and valuation to tackle these questions.
NYSE: GPC
Key Data Points
Another quarter, another sales record
Genuine Parts' business strategy of providing knowledgeable customer service and an expansive lineup of parts to customers has paid off. In just 95 years, the company has grown to 10,600-plus distribution centers, warehouses, and store locations throughout the continents of North America, Europe, and Australasia.
Just as it did in the first quarter, the Atlanta, Georgia-based retailer posted a quarterly record of $5.9 billion in net sales during the second quarter ended June 30. For context, this net sales figure equates to a year-over-year sales growth rate of 5.6%. What contributed to this respectable growth?
Thanks to strong demand for automotive and industrial replacement parts, Genuine Parts' comparable sales grew in both of its business segments for the second quarter.
Comparable sales growth varied from 4.3% in the automotive parts group to 6% in the industrial parts group in the quarter. Together, this is how the company's total comparable sales rose by 4.9% during the quarter.
Genuine Parts' commitment to acquisitions ($106 million in acquisitions volume so far this year) also played a role in its sales growth, chipping in another 1.8% for the quarter. This was partially neutralized by a 1.1% foreign currency translation stemming from continued U.S. dollar strength in the quarter.
Genuine Parts' non-GAAP (adjusted) diluted earnings per share (EPS) surged 10.9% higher over the year-ago period to $2.44 during the second quarter. Thanks to disciplined cost management, the company's non-GAAP net margin improved by over 20 basis points to 5.8% for the quarter. Combined with a lower share count from share repurchases, this is how adjusted diluted EPS grew ahead of net sales in the quarter.
Strength in Genuine Parts' underlying businesses, acquisition activity, and share buybacks could prove to be a tremendous trifecta moving forward. That is why analysts are predicting that the company's adjusted diluted EPS will grow by 8.9% annually for the next five-year period.
Image source: Getty Images.
The dividend could keep roaring higher
Genuine Parts' 2.3% dividend yield is moderately attractive in comparison to the 1.5% yield of the S&P 500 index. And its growth prospects also aren't shabby.
Genuine Parts' dividend payout ratio is set to clock in at around 41% in 2023. This leaves the company with the funds needed to expand its presence and further shore up its balance sheet. This is why I believe that solid dividend growth should continue for at least the next five years.
Genuine Parts stock is a buy
Shares of Genuine Parts have gained 10% over the past 12 months. But given that adjusted diluted EPS could rise at a double-digit pace in 2023, the valuation remains sensible. The stock's forward price-to-earnings (P/E) ratio of 17.1 is only slightly above the specialty retail industry average forward P/E ratio of 15.8. This is hardly an excessive valuation, which makes Genuine Parts an interesting option for dividend growth investors at the recent $155 share price.
