Forget Ford! This Hidden Auto Play Is a Dividend Giant

The auto industry has been in full celebration mode lately, as the most recent figures from Ford and General Motors suggest that the recovery from the near-death experience that U.S. automakers suffered during the financial crisis is largely complete. Yet, by looking beyond the automakers themselves, investors can find an even more lucrative stock that has delivered better long-term returns, and consistently raised its dividend every year for well over half a century.

Genuine Parts (NYSE: GPC  ) is hardly a household name, but you'll find it among the largest producers of auto parts in the industry, and its NAPA Auto Parts stores are widely known among vehicle owners and mechanics alike. Unlike Ford and GM, you'll also find Genuine Parts on the list of Dividend Aristocrats, where admission is determined by whether a company can manage to boost its dividend payouts to shareholders every single year for at least a quarter century. Only a few dozen stocks make the cut, demonstrating their staying power even through tough times. Let's take a closer look at Genuine Parts to see whether it can use recent success in the auto industry to sustain its long streak of rewarding dividend payouts to investors.

Dividend Stats on Genuine Parts

Current Quarterly Dividend Per Share

$0.5375

Current Yield

2.8%

Number of Consecutive Years With Dividend Increases

57 years

Payout Ratio

49%

Last Increase

March 2013

Source: Yahoo! Finance. Last increase refers to ex-dividend date.

What's up with Genuine Parts lately?
Genuine Parts hasn't hesitated to share its wealth with shareholders lately, both in terms of its dividend, and through share-price increases. The stock has soared more than 30% so far this year as the company benefits from the overall strength in the industry.

What's interesting, though, is that historically, auto-parts makers are seen as relying on the lack of success among automakers. After all, new cars don't need parts nearly as often as older cars do, and when Ford and GM perform well, their customers don't have to rely as much on Genuine Parts or competitors AutoZone (NYSE: AZO  ) and Advance Auto Parts (NYSE: AAP  ) for replacements. Yet, even though Advance's 15% gain, and AutoZone's 20% rise year to date, aren't quite as substantial as Genuine Parts, they still signal a paradigm shift in the way investors look at the industry, perhaps recognizing that for every new car sold, there's usually a used car that gets traded in, and so good news for Ford and GM sales might actually translate into more business for the parts industry.

Another part of the explanation might come from Genuine Parts' other businesses. Office products and electronics haven't been big growth areas lately, but the company's sales of bearings and hydraulic and pneumatic components to industrial users give it valuable diversification from its auto-part focus. Strong relationships with its commercial customers have helped the company sustain its momentum, and even though the company missed estimates in its most recent quarter, CEO Tom Gallagher believes that the remainder of the year should improve from its poor first-quarter performance.

GPC Dividend Chart

Genuine Parts dividend data by YCharts.

As you can see, Genuine Parts hasn't been stingy with its dividends lately. After a series of tiny increases in the early 2000s, the company has accelerated its dividend growth, with increases of 10% in 2012, and almost 9% earlier this year. Yet, with the company only paying out about half its earnings in dividends, Genuine Parts' earnings growth seems more than ample to produce further increases in dividends in the future.

When will Genuine Parts raise its dividends again?
Genuine Parts just raised its dividend in March, so it would be extraordinary for the company to boost its payout again before 2014. But as long as prospects in the industry keep improving, investors should look for good things from Genuine Parts.

Another promising area for the auto industry is China, which is already the world's largest auto market -- and it's set to grow even bigger in coming years. A recent Motley Fool report, "2 Automakers to Buy for a Surging Chinese Market," names two global giants poised to reap big gains that could drive big rewards for investors. You can read this report right now for free -- just click here for instant access.

Click here to add Genuine Parts to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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