This article originally appeared on The DIV-Net October 5, 2009.
Linked here is a detailed quantitative analysis of Genuine Parts Co. (GPC). Below are some highlights from the above linked analysis:
Company Description: Genuine Parts Co is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
GPC is trading at a discount to 1.) and 3.) above. The stock is trading at a 7.2% premium to its calculated fair value of $34.38. GPC did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
- Free Cash Flow Payout
- Debt To Total Capital
- Key Metrics
- Dividend Growth Rate
- Years of Div. Growth
- Rolling 4-yr Div. > 15%
GPC earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. GPC earned a Star as a result of its most recent Debt to Total Capital being less than 45% and earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1948 and has increased its dividend payments for 53 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to > MMA
The NPV MMA Diff. of the $466 is below the $500 target I look for in a stock that has increased dividends as long as GPC has. The stock’s current yield of 4.34% exceeds the 3.9% estimated 20-year average MMA rate.
Other: GPC is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index.
Conclusion: GPC did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks GPC as a 3 Star-Hold.
Using my D4L-PreScreen.xls model, I determined the share price would need to drop to $36.21 before GPC’s NPV MMA Differential increased to the $500 that I like to see for a stock with 53 years of consecutive dividend increases. At that price the stock would yield 4.42%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 2.8%. This dividend growth rate is virtually the same as the 2.6% used in this analysis, thus providing no margin of safety. GDP has a risk rating of 1.00 which classifies it as a low risk stock.
GPC is a stock that I have been actively accumulating until its recent run up. I still like the stock but will wait for a more favorable entry point around its buy prices of $34.38. For additional information, including the stock’s dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in GPC (3.7% of my Income Portfolio).
What are your thoughts on GPC?