One big takeaway that I have learned throughout my investing career is that looks can be deceiving. Sometimes, the companies that we overlook or write off as boring are anything but boring.
The auto and industrial parts retailer named Genuine Parts (GPC -0.33%) is the perfect example. With 67 consecutive years of dividend growth to its credit, the company comfortably meets the 50-year requirement to be a Dividend King. You would think that a business with such a reputation would be stodgy. But based on Genuine Parts' recent earnings results, this assumption couldn't be any further from the truth. Let's peek under the company's hood to see what I mean.
The company just delivered a record quarter
Since its founding 95 years ago, Genuine Parts has grown to more than 10,500 locations (i.e., stores, warehouses, and distribution centers) in 17 North American, European, and Australasian countries. The company's massive size allows it to offer an extensive selection of parts to customers (more than 725,000 sold via the NAPA brand). Yet, Genuine Parts hasn't forgotten its roots, priding itself on quality customer service as well.
The retailer reported a record $5.9 billion in sales for the first quarter ended March 31, which was up 8.9% over the year-ago period. This was largely driven by an 8.7% year-over-year rise in total comparable sales, ranging from 6.6% in the automotive parts segment to 12.1% in the industrial parts segment during the quarter.
Genuine Parts' sales also benefited to the tune of 2.4% from acquisitions, which was mostly from the company's acquisition of Lausan, the Spain-based automotive parts distributor last April. Genuine Parts' non-GAAP (adjusted) diluted earnings per share (EPS) surged 15.1% higher over the year-ago period to $2.14 in the first quarter.
The company was disciplined with cost management for the quarter, which resulted in expenses growing at a slower rate than net sales. That helped Genuine Parts' net margin expand by nearly 30 basis points year over year to 5.3% during the quarter. Along with a slight reduction in its share count, this explains why adjusted diluted EPS growth exceeded net sales growth in the quarter.
Given the essential nature of what Genuine Parts sells, analysts expect that the company can deliver 4.6% annual adjusted diluted EPS growth to shareholders through the next five years.
Image source: Getty Images.
A market-topping payout with growth in its future
Genuine Parts' 2.3% dividend yield is considerably higher than the S&P 500 index's 1.7% yield. And if this wasn't enough, the company appears poised to build on its nearly seven-decade dividend growth streak in the years ahead.
Genuine Parts should be able to sustain payout growth since its dividend payout ratio is expected to be less than 42% this year. This allows the retailer to retain enough capital to invest in growth opportunities and reduce debt.
The stock is practically valued
Shares of Genuine Parts have rallied 21% over the past 12 months, crushing the broader markets. But surprisingly, the stock doesn't look to be excessively valued for dividend growth investors.
Genuine Parts' forward price-to-earnings (P/E) ratio of 17.5 is only moderately above the specialty retail industry average forward P/E ratio of 15.8. Factoring in the company's immaculate reputation as a dividend payer, this premium valuation is warranted, in my opinion.
