According to Louis Basenese, the stock made the list for the following reasons:
Genuine Parts Company caters to an increasingly large market. "The U.S. automotive aftermarket currently stands at $215 billion in annual sales. And it's expected to grow a steady 3.8% per year to almost $250 billion by 2014, according to the Automotive Aftermarket Industry Association… Thanks to population growth, the number of cars on the road is bound to keep increasing."
In addition, people on average are keeping the car 1.8 years longer than in 1999, which lends itself well to the auto repair and auto-parts industry.
"Add it all up and more – and older – cars on the road should translate into more repair and maintenance work and, ultimately, more sales for companies like Genuine Parts."
To add to its credit, the company has beaten analyst expectations for 11 consecutive quarters. Recently, it bested analysts in the third quarter with an 11% increase in sales and 17% rise in earnings per share.
Lastly, "for the past 55 years, Genuine Parts not only paid, but also increased its dividend."
As this author writes GPC is valued at $56.60/share.
A Word to the Wise: Understanding Dividend Yields
Dividends are not future guarantees. Although companies try very hard to avoid cutting their dividends because of the bad publicity, a history of paying a dividend does not mean the company will necessarily continue to do so – a dip in profitability, and the dividend can be first to go.
Another important note: higher dividend yields come with their fair share of issues. Of course shareholders prefer larger dividends, but higher dividend yields (i.e. dividend/share price) can indicate that the company is paying unsustainably high dividends, or it can indicate a beaten down share price. The latter is referred to as a "value trap," where the appearance of value covers up the fact that investors are exiting the stock.
As an investor going into a dividend stock investment, it's vital to perform due diligence first if you want to rely on the dividend income in the future.
Looking for other dividend ideas?
We ran a screen by starting with a universe of high-yield stocks that have a proven track record of earnings growth. Both stocks mentioned below have seen EPS growth exceeding 10% over the last 5 years.
In addition, both of these high dividend yield stocks have significant amounts of cash relative to their operating expenses, a fact that might add stability to their future dividend payments.
If you're an income investor, this list might offer a useful starting point.
List sorted by dividend yield.
1. Westwood Holdings Group Inc. (WHG, Earnings, Analysts, Financials): Provides services for its clients. Earnings per share have grown by 19.14% over the past five years. Current dividend yield at 4.06%. Average quarterly operating expense over the last five quarters at $10.95M, vs. most recent cash and short term investments at $53.4M, implies a Cash / Avg. Operating Expense ratio at 4.88.
2. Microchip Technology Inc. (MCHP, Earnings, Analysts, Financials): Develops and manufactures semiconductor products for various embedded control applications worldwide. Earnings per share have grown by 14.35% over the past five years. Current dividend yield at 4.0%. Average quarterly operating expense over the last five quarters at $253.15M, vs. most recent cash and short term investments at $1415.44M, implies a Cash / Avg. Operating Expense ratio at 5.59.
(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA)
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Analyze These Ideas: Getting Started
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Dig Deeper: Access Company Snapshots, Charts, Filings
- Westwood Holdings Group Inc. (WHG, Chart, Download SEC Filings)
- Microchip Technology Inc. (MCHP, Chart, Download SEC Filings)
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