Finding dividend growth stocks can be a wonderful way to invest for the long term. A dividend gives you a direct cash reward for the risks you take in investing. Even better, it’s a reward you get without having to sell your stake in the company that paid for it. When that company not only pays a dividend, but regularly increases it, that dividend can become one of your tools to fight inflation.
With that in mind, a company has stood out among dividend growth companies for being an investment that has paid off the bacon for 66+ years. This company? Authentic parts (GPC 1.57%). For 66 consecutive years it has paid its owners an increasing dividend, and in 2022 it even declared a whopping 10% increase in that payment.
What makes Genuine Parts such a remarkable company?
Genuine Parts is best known in the United States for its NAPA Auto Parts stores, and it also has similar businesses in Canada, Europe, and the Asia/Pacific region. The key thing to understand about auto parts is that they are a great set of products to sell even when the economy is bad.
After all, cars can last a long time, and older vehicles tend to require more repair costs than cars less than five years old. Consumers often have to choose between spending few hundreds dollars to repair an old car to keep it functional or spend dozens of thousands dollars buying a new one. If money is tight or you’re particularly worried about your future, this skews your decision more towards repairing rather than replacing the car.
This structural reality is what has allowed Genuine Parts to pay its owners a growing dividend every year for more than six and a half decades. During this period, the economy has gone through wars, recessions, financial crises and periods of high inflation, and yet the dividend from Genuine Parts has continued to increase, every year.
How does Genuine Parts support its dividend?
Of course, dividends are never guaranteed payments. Even with the company’s incredible balance sheet, it’s entirely possible things could get so bad that even Genuine Parts could be forced to cut its dividend. That’s why just having the right product mix isn’t enough to allow a business to make those payments consistently.
For example, the dividend from Genuine Parts consumes only about half of the company’s profits. In normal times, this gives him money that he can still invest in growing his future, even if he rewards his shareholders. In tough times, it could see a substantial drop in earnings and still cover its dividend.
On top of that, Genuine Parts is managing its balance sheet to give it the flexibility to handle even sharper, longer-term downturns. It carries approximately $610 million in cash and cash equivalents and has an overall current ratio above 1.1. Cash is on hand to meet any large unexpected expenses, while the current ratio means he has enough short-term assets to cover his short-term liabilities for one year.
It’s a huge flexibility that gives the company the ability to adapt if things start to go wrong. Additionally, Genuine Parts’ debt ratio is approximately 1.2. It’s the equivalent for a business of having a $120,000 mortgage on a $220,000 house. Yes, it is debt, but the company is not so indebted that it faces outsized risk if the funding environment tightens again.
Smart business, smart structure, long-term returns
Genuine Parts has a rare combination of a line of business that is well positioned to survive even in tough economic times and internal financial management designed to provide flexibility just in case. This combination is at the heart of how it has been able to earn investors bacon by paying them a growing dividend for 66 consecutive years.
If recent market volatility has convinced you to look for companies that have a proven track record and are willing to reward their shareholders with cash, genuine coins are definitely worth a look. If the market reverts to rewarding massive growth potential rather than proven results, it may not provide the strongest overall returns. Still, if the company’s future resembles its past, investors have a good chance of seeing decent total returns over time, driven by a growing dividend.