1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Articles (956) 

Genuine Parts Company (GPC) Dividend Stock Analysis

April 14, 2011 | About:

Linked here is a detailed quantitative analysis of Genuine Parts Company (NYSE:GPC). Below are some highlights from the above linked analysis:

Company Description: Genuine Parts Co. is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies and office products.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page two of the linked PDF for a detailed description:

1. Avg. High Yield Price

2. 20-Year DCF Price

3. Avg. P/E Price

4. Graham Number

Genuine Parts Co. is trading at a premium to all four valuations above. The stock is trading at a 14.6% premium to its calculated fair value of $46.81. Genuine Parts Co. did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics (see page 2 of the linked PDF for a detailed description):

1. Free Cash Flow Payout

2. Debt To Total Capital

3. Key Metrics

4. Dividend Growth Rate

5. Years of Div. Growth

6. Rolling 4-yr Div. > 15%

Genuine Parts Co. earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the free cash flow payout ratio was less than 60%, and there were no negative free cash flows over the last 10 years. The stock earned a Star as a result of its most recent debt to total capital being less than 45%. Genuine Parts Co. earned a Star for having an acceptable score in at least two of the four key metrics measured. The company has paid a cash dividend to shareholders every year since 1948 and has increased its dividend payments for 55 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section (see page 2 of the linked PDF for a detailed description):

1. NPV MMA Diff.

2. Years to > MMA

The NPV MMA Diff. of the $386 is below the $500 target I look for a stock that has increased dividends as long as Genuine Parts Co. has. If Genuine Parts Co. grows its dividend at 4.8% per year, it will take four years to equal a MMA yielding an estimated 20-year average rate of 3.9%. Genuine Parts Co. earned a check for the Key Metric 'Years to >MMA' since its four years is less than the five-year target.

Memberships and Peers: Genuine Parts Co. is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: Advance Auto Parts Inc. (NYSE:AAP) with a 0.4% yield, AutoZone Inc. (NYSE:AZO) with a 0.0% yield and W.W. Grainger, Inc. (NYSE:GWW) with a 1.6% yield.

Conclusion: Genuine Parts Co. did not earn any Stars in the fair value section, earned three Stars in the dividend analytical data section and did not earn any Stars in the dividend income vs. MMA section for a total of three Stars. This quantitatively ranks Genuine Parts Co. as a 3 Star-Hold.

Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $50.39 before Genuine Parts Co.'s NPV MMA differential increased to the $500 minimum that I look for in a stock with 55 years of consecutive dividend increases. At that price the stock would yield 3.57%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 5.4%. This dividend growth rate is slightly above the 4.8% used in this analysis, thus providing no margin of safety. Genuine Parts Co. has a risk rating of 1.25 which classifies it as a low-risk stock.

Genuine Parts Co.’s long string of dividend increases are supported by its strong underlying fundamentals of sales, earnings and free cash flow growth. The company exhibits excellent financial leadership as evidenced perseverance through the recent downturn. From an operating standpoint, Genuine Parts Co. has an extensive distribution network and it has built a loyal customer following over the years. Since the company is trading well above my buy price of $46.81 and slightly above the $50.39 maximum price supported by its dividend fundamentals, I will wait for a pullback before adding to my position.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in Genuine Parts Co. (2.2% of my Income Portfolio). See a list of all my income holdings here.

Related Articles:

- Cardinal Health,Inc. (CAH) Dividend Stock Analysis

- Walgreen Co. (WAG) Dividend Stock Analysis

- Medtronic Inc. (MDT) Dividend Stock Analysis

- Weyco Group, Inc. (WEYS) Dividend Stock Analysis

- More Stock Analysis

About the author:

Visit Dividends4Life at:

Rating: 2.8/5 (4 votes)


Please leave your comment:

GuruFocus Mobile App

User Generated Screeners

blomgGreenblattUS 2nd Stage
larrytn1 5302016

Select portfolio(s):

  • Loading...

Why you are interested?

Your selection and notes will be stored in your portfolio.

Login to add portfolio
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)