Genuine Parts' (NYSE:GPC) Shareholders Will Receive A Bigger Dividend Than Last Year

Genuine Parts Company (NYSE:GPC) will increase its dividend from last year's comparable payment on the 2nd of April to $1.03. This makes the dividend yield 3.3%, which is above the industry average.

View our latest analysis for Genuine Parts

Genuine Parts' Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Genuine Parts was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 84% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 50.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which is in the range that makes us comfortable with the sustainability of the dividend.

Genuine Parts Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from $2.30 total annually to $4.12. This means that it has been growing its distributions at 6.0% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Genuine Parts Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Genuine Parts has seen EPS rising for the last five years, at 8.0% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for Genuine Parts that investors should know about before committing capital to this stock. Is Genuine Parts not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.