GPC Stock Evaluation

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I hope everyone had a great holiday and happy new year!  I think I have discovered the only downside of the holidays: no stock market to monitor! Anyway, welcome back to the third edition of my "Foundation" stocks section.  If this is your first time visiting the site or this section, here are the links for the other evaluations of JNJ and AFL.  

I have a confession to make: I did not do this research directly for the site, instead I did it for myself.  I know, fucking selfish, right?  Well, my intentions are now good, because I'm providing the results here for all your beginning dividend investors.  If I were starting out, these are the 5 companies I would build a base in first, and then branch out thereafter to other companies to further spread my risk.  The exercise stresses the importance of knowing everything about stocks you choose to buy.  Know their history.  Know what red flags they might have (no company is perfect) so you can monitor those particular things carefully. If you buy a risky stock, know it needs to be watched, and you need to have a plan if things go right or wrong.  I wanted to put together this section of this site because these 5 stocks are more of "buy it and forget it" than others you might look into. I likely won't ever have to sell these investments and I can rest assured that this portion of my portfolio will keep churning out dividends.  Let's just call it like it is....even though the market has always gone up over time and given us free money, it's still somewhat terrifying to pick out which stocks will be a large chunk of our portfolio (or your whole portfolio!), especially if you are new to the game.  I have recently reached the point where my portfolio hit around 35 stocks and I needed to decide which companies were the safest for the largest portion of my money.  I'm currently holding off investing in new companies for the next couple of months and plan to increase my safest current positions.

I ended up doing this research on about 40 companies and came up with these 5 foundation stocks. Keep in mind, I'm not looking for a huge dividend or a quick double up in price, I'm simply looking for stocks that I can put a large portion of my money in and sleep easy knowing that they'll keep dropping money into my account every quarter with their consistent and increasing dividend.  There will be other times to look for a high dividend payer or an up-and-coming stock with a nice valuation (future section??).  So that's the story here (in case you cared!).

 

For your ongoing reference, I will continue to list the criteria the stocks need to meet to qualify:

 

MARKET CAP> 2 BILLIONDIVIDEND HISTORY>20 YEARS
P/E RATIO< 20DIVIDEND INCREASES1,3,5 YEAR AVG ALL OVER 5%
CURRENT EPS>3PAYOUT RATIO<70% FOR LAST 5 YEARS
EPS GROWTH ESTIMATE>3%

 

And with that, stock #3...

 

Genuine_Parts_Company_logo

 

Description From Google Finance:

Genuine Parts Company is a service organization engaged in the distribution of automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials. The Company operates through four segments: Automotive Parts Group, which distributes automotive parts and accessory items; Industrial Parts Group, which distributes industrial replacement parts and related supplies; Office Products Group, which is engaged in the wholesale distribution of a line of office and other business related products, and Electrical/Electronic Materials Group, which distributes materials to more than 20,000 electrical and electronic manufacturers, as well as industrial assembly and specialty wire and cable markets in North America. In 2014, the Company's business was conducted from approximately 2,600 locations throughout the United States, Canada, Mexico, Australia and New Zealand.

Description In Non-Business Jargon:

If you've ever done any car repair, you've most likely interacted with a GPC product before.  They own and operate 1,100 NAPA auto parts stores in the United States, as well as 700 more Traction stores in Canada.  GPC is a huge company with numerous distribution centers and storefronts, and is a leading provider of replacement automotive parts.

Basic Statistics

 

MARKET CAP12.66 BILLIONEPS GROWTH (5 YR EST)5.09%
CURRENT PRICE$84.83PEG
3.60
CURRENT P/E18.3PEGY2.29
CURRENT EPS4.64BETA0.83

 

P/E Under 20: Check. Within our normal limit.

EPS Current + Projected both over 3: Check. Earnings are fairly high at over 4.5 and projected to grow 5% in the next 5 years.  Not a ton of expected growth here, but we'll see all these stats indicate a stable, safe company that will pay us consistently over time.

PEGY: Again, no criteria here, but the PEGY ratio can tell us what to expect going forward.  GPC has a PEGY of 2.29, which means that we expect to pay $2.29 for every $1 of value going forward (including dividend payouts).  This means that large price growth has most likely already happened, but not that we won't see any more in the future.  We will get into why the PEGY is a little high when talking about the dividends below.

Dividend Information

 

DIVIDEND AMT$0.62DIV GROWTH - 1 YR6.9%
DIVIDEND YIELD2.9%DIV GROWTH - 3 YR
8.5%
PAYOUT RATIO53.4%DIV GROWTH - 5 YR8.1%
HISTORY59 YEARSPAYOUT RATIO (prev 4 years)55%, 50%, 48%, 49%, 50%

 

History: Check. 59 years of growth.  More than twice my age, seems long enough to me 🙂

Dividend Yield: Check. Over our 2.5% threshold.  2.9% is an average dividend.  Most of the companies that have an extremely long dividend history will be around 3%, because they have carefully calculated what the can afford to pay with a margin of safety for rough years and setbacks in the business.  

Dividend Increases: Check.  I look for over 5% growth in the 1,3, and 5 year dividend increases, which safely outpaces what we lose due to inflation.  With the extremely long history of GPC's dividend and modest growth, we should expect this to pay off for us long term.

Payout Ratio: Check. Good payout ratios over the last 5 years.  What I like about these numbers is their consistency, no reason for panic when they stay within the 50% range +/- 5%.  The only cause for panic when looking into these ratios is if they are consistently high, or trending in the wrong direction.  We see no red flags here.

$1000 Invested in January 2011

 

Obviously, this section doesn't do us any good if we DIDN'T invest $1000 in January 2011, but I figured it would give you an idea of how the stock has paid off in the recent future.  Don't read too much into this, as it serves as mostly motivation to begin investing as soon as possible and let time in the market work in your favor.

Present Value (as of 01/03/2015) = $1,972 with dividend reinvestment for an average return of 14.52% per year.

Summary

 

For those of you who have read my other foundation stock articles (JNJ & AFL), GPC seems closer to the JNJ model.  A long steady history of dividends over 55 years with steady increases.  The earnings are good, but there is not a ton of growth expected.  The payout ratio is low, so we are confident the payments will keep coming.  People pay for consistency, illustrated in the relatively high PEGY ratios (people are paying more than $1 for $1 of growth/return).  Just because there is not a lot of growth expected shouldn't scare you away.  We, of course, expect SOME growth in price as the overall market increases.  Often times, a high current EPS and a relatively low growth rate as seen here just indicates consistent success in the marketplace.

Just another safe dividend stock that I see no red flags with.  They have a strong hold in their market and they have had it for a long time.  Again, a company that you see at work everyday, as you are likely to spot NAPA stores or replacement products made by GPC.

Right now my plan is to build my GPC position up to 6% of my total portfolio and continue to collect my dividends.

Two more posts are coming to round out my 5 foundation stocks.

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http://monthlycents.com/2016/01/03/genuine-parts-company-stock-evaluation/

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