Dividend Investing In The Retail Automobile Parts & Accessories Sector
In keeping with my themed dividend posts, in June I have focused on planes, and in August I ran posts on trains and today I’ll focus on automobiles.
These days the average age of a car on the road is at record highs. In fact, the current age of automobiles on the American road stands at 11.4 years. It’s interesting to note that prior to the financial crisis the average age of cars on the road was approximately 9 years. Of course, there are many factors in play that can account for cars lasting longer. Foremost, the quality of automobile assembly has much improved coupled with the fact that fewer Americans are able to afford a new car. Insuring those vehicles has also become more affordable as they age via comprehensive insurance by youi.
With 250 million cars and trucks on the roads in the United States increasing in average age every year, where does one go to purchase parts and other maintenance items for their vehicles? The answer from a dividend perspective. It’s the retail automobile parts and accessories sector of course.
Unfortunately, the retail automobile parts and accessories sector offers little options for dividend investors. But not to worry. Two potential dividend players may find a spot in your dividend portfolio.
First up is Genuine Parts Company (GPC). Genuine Parts distributes automotive replacement parts almost exclusively in North America for every type of vehicle imagined. GPC also owns 62 NAPA Auto Parts distribution centers as well as 1,100 NAPA Auto Parts retail stores. Currently yielding a decent 2.80% with a moderate payout ratio of 50.0% based on a current EPS of $4.60, GPC has a very, very long dividend raise history going back 57 years! Based on that fact alone Genuine Parts is in a dividend class almost all its own. The ten year annualized dividend growth rate for GPC is also a very respectable 6.18%. The current PE is 19.47 which is well below industry peers, however higher than its five year average. The forward PE looks a lot more attractive at 17.60. Perhaps wait to pull the trigger on this one and wait for the current yield to get closer to 3%.
Finally, in the retail automobile parts and accessories sector, from a dividend perspective, (see I told you there weren’t many in this space) we have Advance Auto Parts Inc. (AAP). As the company name suggests, Advance Auto Parts operates as a speciality retailer of automotive after market parts through a network of 5,276 company-operated stores as well as approximately 1,400 independently owned Carquest branded stores throughout North America. AAP currently yields a low 0.20% with an equally low payout ratio of just 3.1% based on a current EPS of $7.72. It’s rare to find dividend paying stocks with such a low payout ratio. Based on current figures the dividend is considered to be very safe. From a valuation perspective AAP has a PE of 24.20, which like GPC is well below its peers but above its five year average. The forward PE looks a lot more attractive at just 15.90.
There you have it. The two most prominent dividend paying companies in the retail automobile parts and accessories sector. Of course, there are other players such as Pep Boys – Manny, Moe & Jack (PBY) and O’Reilly Automotive Inc. (ORLY) but I tend to focus on current dividend paying companies as PBY ceased dividend payments in 2012 after the private equity firm Gores Group LLC wanted to buy PBY for $15 per share in cash. The deal ultimately did not go through and the dividend has since not been reinstated.
Clearly, the choices are few if you are interested in this sector. GPC, though has a very long dividend raise history and definitely deserves a more thorough look. AAP looks interesting as well, however I have a feeling that the current yield of 0.20% will not get many dividend investors excited. However, with cars staying on the road a lot longer than ever before in history, you have to wonder about the continuous and increasing demand for the parts and services these retailers are offering.
Are either of these companies in your dividend portfolio? Please let me know below.
Disclousre: Long NONE
Image courtesy of Sira Anamwong at FreeDigitalPhotos.net
22 thoughts on “Drive Your Way Towards Dividends”
I am wondering why you didn’t include any car companies?
The way I see it, GM is pretty well on the way to continuing to pay a dividend yield of 3.5% pa in for the next 18 months or so. At least that’s what I get from how the markets are pricing GM options now…
This article was very specific regarding my focus on the retail automobile parts and accessories sector. Auto manufactures are a definite topic for another post. In fact, this article highlights how small this sector is from a dividend perspective. I also plan to cover auto part manufacturers in another post. You know, the companies that actually produce the parts for GPC, AAP, PBY and ORLY to sell. Thank you for stopping by and commenting.
I suppose everyone was expecting an analysis of the big boys : )
GPC’s yield is going to grow; I see it beating 3% over the next year. Perhaps due to the lower forward PE you mention…
I like to focus on the “big well known” dividend payers as well as the more obscure such as in my Dividends From The Grave article or Dividend Aristocrats You Never Heard Of. GPC is a great long term holding in my opinion. I’ll be writing about the big boys in future articles too. I appreciate your comment.
I do not have any automotive parts stocks in my portfolio, for the simple reason that I have spent 35 years in the auto industry and my pension is coming from one of the “Big Three” next year. That would probably be putting too many eggs into one basket.
Speaking of the Big Three, will you be covering the auto manufacturers? I see that Fiat’s reorganization with Chrysler is almost complete and ready for an IPO. I also saw an analyst on CNBC giving Ford a lot of love yesterday.
Good call on your part to not put too many eggs in one basket. You often hear of many employees opting to take stock in the company they work for as part of their pension without realizing the lack of diversification this decision creates. Former employees of Enron and Worldcom know this act all too well.
I do plan to cover auto manufacturers at some point. F has actually been a great stock to be in since the recession that began about five years ago. The auto manufacturing industry is definitely not as stable as other sectors which is why I never considered investing in that sector because of near and long term risk. Still, regarding this article at least, it’s amazing that an auto parts retailer such as GPC has been such a strong dividend payer for multiple decades. Thank you for commenting.
Very Nice summary, I would assume you are looking at the car manufacturers in a future post as well? I am with you that the P/E ratios seem to be very high right now, but if cars are going to be used longer then the parts companies may fare better in the long term.
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The auto manufacturers are a topic for a future post indeed. I thought it was interesting to highlight the retail auto parts companies because of the fact that the average car age on the road is the highest it has ever been in history. Definitely driving our cars longer keeps these retailers in business longer and demand for their services seems to be on an uptrend. Thank you for commenting.
I’m surprise Tesla isn’t on that list! It’s the future. Just kidding, I can’t predict the future.
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Funny. Perhaps one day when TSLA pays a dividend it will be featured on this blog. Your comment reminds me of a famous Warren Buffett quote regarding the car industry. He stated that at the start of the 20th century there were about 2000 auto manufacturers in the U.S. with only 3 surviving today. His suggestion was not to buy any one auto manufacturer (that looked really hot and promising such as TSLA) rather go short on horses. In other words, it is almost impossible to pick any future winner in a new industry such as electric cars. Look at the whole picture and see what impacts electric cars are having on other industries and sectors instead. Thank you for stopping by.
Very nice summary. We don’t have any retail automotive parts companies in our portfolio. The PE seems very high for all of them right now so I’d probably look at somewhere else to invest.
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While the PEs are a bit high relative to the market as a whole these stocks actually have a quite low PE when compared to industry peers. PE alone cannot give you a whole picture when determining the value for a company. As mentioned in other replies, you cannot discount the extensive dividend history of GPC either. As always, I appreciate your comment.
Nope. I’ve only got Johnson Controls JCI which I think is related to the auto parts industry.
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JCI is a great solid long term pick that is also in my portfolio. They are an auto parts manufacturer which is a sector that I will discuss in another post. This post discussed the auto parts retailers exclusively. Thank you for stopping by and commenting.
I don’t own any automotive stocks at the moment but I would consider GPC as a long term pick. I would never consider GM, F, or Fiat because these companies can easily go out of business. The auto industry is very competitive and you don’t know if a company like Tesla will take over the industry. But going back to your article, I was surprised you didn’t mention Autozone (AZO). Is it because the stock price is $538/share? P/E stands at 17.33 according to google finance.
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AZO has been a great performer long term but as you know I like to focus on stocks from a dividend perspective and as you know AZO does not pay one. As far as dividend payers in the sector there really is only a choice between two GPC and AAP with GPC seemingly the long term dividend favorite. As far as auto companies are concerned I fully agree with your assessment and reminds me of the Warren Buffett comment I wrote in another reply regarding the car industry. He stated that at the start of the 20th century there were about 2000 auto manufacturers in the U.S. with only 3 surviving today. His suggestion was not to buy any one auto manufacturer (that looked really hot and promising such as TSLA) rather go short on horses. Think about that one. Thank you for stopping by and commenting.
There is an interesting article in the Detroit News today about Bosch and Denso and predictions for future parts suppliers’ (OEM) growth due in large measure to the new autonomous driving regulations: http://www.detroitnews.com/article/20140831/AUTO0104/308310012/Toyota-supplier-takes-ISO-role-catch-German-rivals-3-years
Thanks for sharing this article. It’s interesting to note that the automobile industry, for being as old as it is, is in continual flux with ever changing technologies and consumer demand shaping the industry as a whole. I happen to agree with the assessment that part suppliers, manufacturers and distributors have ground for a lot of future growth based on autonomous cars coming to fruition and even in the nearer term with more aging cars the road today requiring additional maintenance. Thank you for stopping by and commenting.
GPC ranks within my top 100 so I did buy some this year.
GPC looks to be a great long term investment and dividend play as well. I was surprised to learn of their extensive dividend history and dividend raises as well. It seems like this stock does not get a lot of attention among the dividend blogging community. Not sure why exactly. Thanks for sharing your purchase of GPC.