Genuine Parts: A Long Track Record

03/24/2020 5:00 am EST

Focus: INDUSTRIALS

Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

Genuine Parts (GPC) was founded by Carlyle Fraser in 1928 with six employees and $75,000 in first year sales; after 92 years of steady progress, sales motored ahead to more than $19 billion this year, observes Ingrid Hendershot, value-oriented money manager and editor of Hendershot Investments.

With over half of the company’s revenues coming from auto replacement parts, Genuine Parts boasts the largest auto parts network in the world.

The company provides parts to thousands of National Auto Parts Association (NAPA) stores across the United States and Canada. The auto parts business has also expanded through acquisitions in Mexico, Australasia and most recently in Europe.

A hallmark of Genuine Parts has been the company’s consistent growth in sales, earnings and dividends. Sales have grown in 87 of the last 92 years while profits have risen in 75. Genuine Parts has paid dividends to shareholders every year since going public in 1948.

In February 2020, the company increased the dividend by 4% to an annual rate of $3.16, marking the 64th consecutive year of increased dividends, a record matched by few other companies. The dividend currently yields an attractive 3.6%.

Management is committed to creating shareholder value through a disciplined capital allocation strategy. With the business generating robust free cash flow, priorities for cash are to reinvest in existing businesses, make acquisitions to spur future growth, steadily increase the dividend as they have done for more than six decades and repurchase shares.

Over the last five years, the company has returned $2.9 billion to shareholders through dividends and share repurchases. Genuine Parts targets acquisitions with returns on invested capital over 15%.

Most of the acquisitions have been small bolt-on acquisitions for its various divisions, but in 2017, GPC made a $1.5 billion acquisition of U.K.-based Alliance Automotive Group which provided the vehicle to expand into Europe.

Genuine Parts is a high-quality firm with a long track record of consistent growth in sales, earnings and dividends, a disciplined capital allocation strategy and solid long-term growth goals which should power future value for investors hopping on for the ride. We are adding to our position. Buy.

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