As seen below, the average age of all light vehicles has increased by nearly 50% over the last 20 years. When consumers maintain older vehicles, more money is spent on repairs and aftermarket parts and services. GPC says that prime years for aftermarket repair start in the sixth year of a vehicle’s life and estimates that the automotive aftermarket sector will grow 1-2% per year going forward. Low gas prices are also resulting in more miles being driven, which results in more aftermarket business.
Source: General Parts Company Investor Presentation
In summary, GPC’s businesses operate in slow-changing industry and maintain dominant market share positions because of their extensive distribution networks (just-in-time delivery), leading range of products, brand recognition, and long-standing customer relationships.
Key Risks
GPC’s business can be impacted any given quarter by currency rates (roughly 20% of the business is overseas), industrial production trends, and the health of the auto market. However, none of these factors seem likely to hurt the company’s long-term earnings power, and the aftermarket business is generally much steadier than the broader economy.
The bigger risks to owning GPC would likely be if its model came under attack as a result of secular changes in the way cars are made (e.g. with higher quality materials and less parts, resulting in fewer repairs needing to be made) or driven (e.g. self-driving vehicles would presumably get in fewer car accidents and be driven more responsibly, reducing needs to repairs). If the average vehicle age starts to retreat back to levels in the 1990s, that could also reduce GPC’s growth rate.
E-commerce could be a threat as well, although GPC seems well positioned for this theme with its own websites.
The company’s large, highly fragmented, slow-changing markets help mitigate these risks.
Dividend Analysis
We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend. GPC’s long-term dividend and fundamental data charts can all be seen by clicking here.
Dividend Safety Score
Our Safety Score answers the question, “Is the current dividend payment safe?” We look at factors such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.
Genuine Parts Company (NYSE:GPC) has one of the safest dividend payments you can find with a Safety Score of 96. Over the last four quarters, GPC’s dividend has consumed 53% of its earnings and 37% of its free cash flow. These payout ratios are pretty consistent with the company’s long-term payout ratios (see below) and provide GPC with a nice cushion and room for dividend growth.
Source: Simply Safe Dividends
Source: Simply Safe Dividends
GPC’s sales have been pretty steady, too. During the financial crisis, the company’s revenue dropped by just 9% and earnings fell by 16% in 2009. GPC’s stock also performed relatively well, outperforming the S&P 500 by 22% during 2008.
