We recently published a list of 10 Cheapest Dividend Aristocrats to Buy Now. In this article, we are going to take a look at where Genuine Parts Company (NYSE:GPC) stands against other cheapest dividend aristocrats to buy now.
Dividend Aristocrats refer to companies with a strong track record of increasing their dividends for at least 25 consecutive years. These stocks are often favored by investors due to their reputation as dependable sources of income. A company’s ability to raise dividends consistently over decades is considered an indicator of financial resilience and stability. In addition, these stocks have demonstrated strong long-term performance, often surpassing other asset classes. According to a ProShares report citing FactSet data, the Dividend Aristocrat Index delivered a notable return of 27.7% between March 2022 and April 2023, outperforming the broader market, which posted a 25.2% return over the same period.
A company’s history of annual dividend increases, regardless of its length, does not guarantee that future payouts are secure. However, when management frequently highlights these streaks in earnings calls and annual reports, it suggests a strong commitment to maintaining and growing dividends when making capital allocation decisions. Even so, history shows that some Dividend Aristocrats have had to reduce their payouts, leading to their removal from the list.
The year 2020 served as a significant test of dividend durability among these companies. When the COVID-19 pandemic struck in March, consumer demand in several industries declined sharply. As a result, numerous companies either cut or suspended their dividends, some voluntarily and others as a condition of accepting government stimulus funds. By the end of 2020, a total of 66 companies in the broader market had distributed less in dividends than they had in 2019, according to a report by Morningstar.
While a dividend cut poses a risk, it can also create opportunities. Short-term investors focused solely on high dividends often sell their shares when a company reduces its payout. This can open the door for long-term, value-oriented investors to purchase shares at more attractive prices. Simon Adler, value equity fund manager at Schroders, made the following comment about this:
“We would never tell a company what its dividend should or should not be. Instead, we prefer to afford the management teams of companies in which we invest the space and the confidence to cut their dividend if they feel it is unsustainable or the money is better spent elsewhere. Far better it takes that approach than overstretch its balance sheet to pay a dividend it cannot afford.”
Dividend-paying stocks are often linked to value investing, as they typically offer higher yields and stronger financial fundamentals compared to growth stocks. A report from S&P Dow Jones Indices noted that income-focused investment strategies tend to exhibit characteristics associated with value stocks. Companies with high dividend yields and lower valuations frequently draw investor interest. However, the report also highlighted that the Dividend Aristocrats Index is not strictly value-focused. Instead, it maintains a balance between growth and value stocks. A long-term analysis of the index from 1999 to 2022 showed that, on average, 59.04% of its holdings fell into the value category, while 40.94% were classified as growth stocks.
Our Methodology
For this list, we scanned the list of the Dividend Aristocrats, the stocks that have raised their payouts for 25 years or more. From this group, we identified 10 stocks with the lowest price-to-earnings (P/E) ratios. The chosen stocks featured in the list exhibit a forward P/E ratio below 25 as of February 14. The stocks are ranked in ascending order of their P/E ratios.
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A line of mechanics diagnosing a recreation vehicle engine at a repair shop.
Genuine Parts Company (NYSE:GPC)
Forward P/E Ratio: 14.84
Genuine Parts Company (NYSE:GPC) is an American industrial supplies company that deals in automotive and industrial replacement parts. The company runs its automotive parts division under the NAPA brand, consisting of approximately 2,000 company-owned stores and about 4,800 independently operated stores across North America. The Automotive Parts Group is a major part of the business, contributing over 60% of the company’s total revenue. This segment offers a broad selection of replacement parts for cars, trucks, and other vehicles, excluding body parts.
Genuine Parts Company (NYSE:GPC) has not performed well in 2024, as the stock has fallen by nearly 14% in the past 12 months. The company is currently facing two major challenges in demand. The first is a slowdown in industrial production within its main US market, which is more significant than the growth in international demand. The second challenge is a slight drop in sales of replacement automotive parts.
That said, Genuine Parts Company (NYSE:GPC)’s cash position makes it a reliable investment option. In the first nine months of 2024, the company generated $1.1 billion in operating cash flow and $711 million in free cash flow. During this period, it returned $411 million to shareholders in the form of dividends. The company’s quarterly dividend comes in at $1.00 per share for a dividend yield of 3.22%, as of February 14. It maintains a 68-year streak of consistent dividend growth, which makes GPC one of the best dividend aristocrat stocks on our list.
Overall, GPC ranks 5th on our list of cheapest dividend aristocrats to buy now. While we acknowledge the potential for GPC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GPC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap
Disclosure: None. This article is originally published at Insider Monkey.
