For all those decades NPR’s “Car Talk” dominated radio, the automotive advice show was notable for one omnipresent sound: the brothers Magliozzi, laughing their head gaskets off. And no wonder; as the jolly mechanics themselves acknowledged, nothing brings a smile to a garage owner’s face faster than a string of heavy-duty repair jobs.
And what’s good for the mechanic is good for the parts supplier, a fact evidenced by the longevity of Genuine Parts Co. (ticker: GPC). Known for its familiar NAPA brand, Genuine Parts was founded in 1925: the year of “The Great Gatsby” and era of the Model T.
It’s since doled out reliable dividends, now for more than six decades. Among dividend kings, it’s an overlord. If it makes it through 2018 without a hitch (except, of course, for the trailer kind), GPC will celebrate 62 consecutive years of increased dividends paid to shareholders.
[See: 7 Auto Stocks to Drive Income.]
To put that in perspective, the streak began in 1956, when Dwight D. Eisenhower was in the White House and Ford Motor Co. ( F) was just weeks away from putting a brand new Edsel in your neighbor’s driveway.
Who knows how many Edsels gave GPC a healthy push worth filing under “desperate clunker fix”? What investors can say without doubt is that Genuine Parts, like many other dividend aristocrats, deals in a safe business beyond the reach of recessions or economic meltdown. Just so long as the motor vehicle doesn’t go the way of the buggy whip, they’ll likely do just fine.
In fact, you could apply the Edsel’s ill-fated slogan to GPC: “It makes history by making sense.”
“Car parts are a recession-proof business due to the fact that old and new cars will always need to be fixed, and most of the time it’s cheaper to repair than to buy new,” says Joseph Inskeep, a financial advisor at Advanced Wealth Strategies Group in Round Rock, Texas. Even when the economy is sound, “You still have to maintain your car or truck.”
Other such not-going-anywhere sectors Inskeep points to include utilities (“You have to keep the lights on”); beer and cigarette companies (“People tend to drink and smoke more during times of unemployment or financial duress”) and fast-food joints such as McDonald’s Corp. ( MCD).
Now let’s play devil’s advocate and say, “What about the age of artificial intelligence?” Sure, a point in time might arrive when grease monkeys give way to grease robots and Uber drivers to driverless cars. But a muffler is still a muffler, and a dipstick still a dipstick.
“Self-driving cars will still need replacement parts,” says Bob Johnson, principal of the Fed Policy Investment Research Group in Charlottesville, Virginia. And what’s true here applies the world over. “GPC also has global presence, as it’s a distributor of automotive replacement parts in the U.S., Canada, Mexico and Australia,” he says.
[See: Car Companies and the Race to Profits.]
What makes Genuine Parts go after all these years? If nothing else, its stock is steady if not spectacular. It’s up a modest 11 percent from five years ago, suggesting it can weather short-term dips like the one that’s dogged it since January. After coming just pennies short of a five-year high on Jan. 26 — when it traded for about $108 per share — it hit the proverbial pothole, falling to roughly $91.
Among Wall Street analysts, the view is somewhat meh; one rates GPC a “strong buy,” one an “underperform” and four a “hold.” Buy-and-hold investors will have a different view, though, as GPC has jumped 168 percent since this time in 2009.
Regardless, the dividend abides and after more than a half century shows no signs of hitting the brakes. Currently it pays out at 72 cents per quarter. That makes for a payout ratio of 51.1 percent, the amount you get when you divide the annual dividend ($2.88) by GPC’s earnings per share ($5.64).
In May 2017, the quarterly dividend paid out 67.5 cents, and going back to 2013, it stood at 53.75 cents. No flat tires here.
“In times of volatility, long-term investors have an appreciation for GPC’s ability to provide a consistent and constantly growing dividend,” says Seth Basham, managing director, equity research at Wedbush Securities in New York City. “This affords them a premium valuation versus some peers, including AutoZone ( AZO) and Advance Auto Parts ( AAP).”
In at least one key aspect, GPC has something going for it the others don’t: leadership permanence to rival its dividend. CEO Thomas C. Gallagher has occupied the corner office since 2004 — and his tenure in the C-suite dates to 1990, when he began by serving as GPC’s president. So while it may not offer returns to rival the high-tech hotshots, GPC makes up for in durability what it lacks in glamor.
“Outside of its dividend history, GPC also has a consistent history of share repurchases,” Basham says. And when you combine those factors, “GPC has returned roughly $2.7 billion to shareholders over the last five years.”
[See: The 10 Most Valuable Auto Companies in the World.]
In other words, slow and steady wins the race.
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GPC Pays Investors for 6 Decades originally appeared on usnews.com
