We recently compiled a list of the Dividend Kings List: Top 15. In this article, we are going to take a look at where Genuine Parts Company (NYSE:GPC) stands against the other dividend kings you should know about.
Dividend Kings are a distinguished group of companies that have achieved at least 50 consecutive years of dividend increases. While some of these companies are part of the S&P index, the two categories are not entirely overlapping. The appeal of Dividend Kings became especially clear after the disruptions caused by the COVID-19 pandemic in 2020. During this time, numerous companies either reduced or suspended their dividends, leaving income-focused investors disappointed. Many had assumed that dividend-paying stocks were inherently lower risk, only to face steep share price drops alongside payout cuts. However, Dividend Kings stand out for their remarkable consistency, boasting 50 years of uninterrupted dividend increases. This long history of reliable payouts provides a sense of stability, even in volatile market conditions.
Investors often gravitate toward firms with a track record of consistent dividend growth, as such companies tend to perform well in declining or stagnant markets. Even during periods of strong market performance, dividend growers have captured a significant share of the gains. Following a long-term dividend growth strategy can aid in compounding returns for investors. A T. Rowe Price report highlighted that, between 1985 and 2022, companies in the Russell index that consistently increased dividends outperformed the broader benchmark. Furthermore, these companies exhibited lower price volatility compared to the overall market.
Earning income through dividend stocks is a gradual process that requires patience and a commitment to long-term investing. These stocks are particularly suited for investors with a long-term horizon, as they have consistently outpaced inflation over time. According to data from Morningstar and Yale University’s Robert Shiller, since 1871, the market’s dividends per share have grown at an annualized rate 1.6 percentage points higher than inflation. Moreover, the gap between dividend growth and inflation has widened in recent years. Over the past 50 years, dividends have outpaced inflation by 2.5 percentage points annually, and in the last 20 years, the margin has grown to 4.6 percentage points per year.
During market rallies, dividend-growing stocks may underperform as investor enthusiasm and momentum often take precedence over fundamentals such as valuation and business quality. This trend has been especially noticeable in the recent past, with dividend stocks lagging behind the broader market. Nonetheless, maintaining a long-term strategy centered on dividend growth can be advantageous, as the benefits accumulate over time with each increase in payouts. Companies with solid fundamentals and robust financial stability are typically well-positioned to sustain and grow their dividends. In contrast, smaller or emerging businesses often prioritize reinvesting earnings into their operations to fuel growth. Given this, we will take a look at some of the best dividend kings with the highest yields.
Our Methodology:
To create this list, we examined a set of over 50 dividend king companies, recognized for consistently increasing dividends for 50 years or more. From this group, we selected companies with the highest dividend yields as of December 3 and organized them in ascending order based on their yield, from lowest to highest. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 900 as of Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A line of mechanics diagnosing a recreation vehicle engine at a repair shop.
Genuine Parts Company (NYSE:GPC)
Dividend Yield as of December 3: 3.14%
Genuine Parts Company (NYSE:GPC) is an American industrial supplies company that specializes in automotive and industrial replacement parts. The stock is down by over 8.4% since the start of 2024 because of temporary business headwinds. The company is currently dealing with two significant demand challenges. The primary issue is a slowdown in industrial production activity within its key U.S. market, which outweighs the growth in demand from international markets. Additionally, there has been a slight decline in sales of replacement automotive parts.
In the third quarter of 2024, Genuine Parts Company (NYSE:GPC) reported revenue of $5.97 billion, which showed a 2.5% growth from the same period last year. The revenue also beat estimates by $21.4 million. However, the company acknowledged that its results fell short of expectations, largely due to ongoing challenging market conditions in Europe and underperformance in its Industrial segment. Its Global Industrial sales of $2.2 billion fell by 1.2% from the prior-year period.
Oakmark Funds highlighted the positives in the company’s business in its Q3 2024 investor letter. Here is what the firm has to say:
“Genuine Parts Company (NYSE:GPC) is a distributor of automotive and industrial replacement parts. The company primarily operates under the NAPA brand name in the automotive market and Motion Industries in the industrials market. The two business segments address different end markets but share some attractive traits. In both markets, the majority of sales are replacement parts, which leads to steady demand and dampened cyclicality. Customers often prioritize speed and service over price, which promotes a rational competitive pricing environment. Additionally, both markets are fragmented, with GPC representing one of a handful of scale players competing against a long tail of independent operators. The NAPA ecosystem, which includes nearly 2,000 company-owned stores and nearly 4,800 independently owned stores in North America, is a difficult-to-replicate asset that offers broad coverage nationwide. We see opportunity for the store base to operate more efficiently as management’s recent investments start to bear fruit. Motion Industries is the clear leader in its niche with roughly twice the revenue base of the closest direct competitor, and it differentiates itself via its technical salesforce and network density. Historically, GPC has consistently earned high returns on capital and supplements solid organic growth with value-accretive tuck-in acquisitions. The stock trades at a sizeable P/E discount to peers and the broader market, which we view as an attractive entry point.”
Genuine Parts Company (NYSE:GPC)’s cash position makes it one of the strongest dividend payers in the industry. In the first nine months of 2024, the company generated $1.1 billion in operating cash flow and its free cash flow for the period was $711 million. During this time, it returned $411 million to shareholders through dividends. The company currently pays a quarterly dividend of $1 per share and has a dividend yield of 3.14%, as of December 3. It is one of the best dividend kings on our list with 68 consecutive years of dividend growth.
At the end of Q3 2024, 27 hedge funds tracked by Insider Monkey held stakes in Genuine Parts Company (NYSE:GPC), compared with 31 in the previous quarter. The consolidated value of these stakes is over $391 million.
Overall GPC ranks 15th on our list of the dividend kings you should know about. While we acknowledge the potential of 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: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
