Auto Parts Industry Driving In The Dividends

Published Tue, 19 Mar 2013 10:30 CET by

The auto parts manufacturing industry in USA has an annual revenue of around $180B, and consists of approximately 4,000 companies. Based on the modest recovery in the US economy, and also the continued low interest rate regime, the auto sales are expected to grow at a high rate in the next two years. As consumer confidence grows, the uptrend is supported by demand both from households and businesses. Importantly, low cost finance is helping auto makers increase their pricing power as they can afford to reduce discounts which were adversely affecting their margins. As per the Global Auto Report of March 6, 2013, sales in North America are expected to increase from 17.07M units in 2012 to around 18.23M units in 2013, a 6.8% rise.

This continued vigor since 2010, augurs well for the auto parts companies, and they are expected to benefit significantly from this growth. Over the years, several companies from this industry have rewarded the shareholders with capital appreciation, and consistent dividend payments. Three of them are discussed below.

Auto & Truck Parts Dividend
Genuine Parts (NYSE: GPC) is engaged mainly in the distribution of automotive replacement parts. Founded in 1928, the company also has presence in the industrial replacement parts, office products, and electrical/electronic materials segments. The Automotive Parts Group, the largest division of Genuine Parts, distributes around 380,000 products through its 2000, regionally located, distribution centers across USA, Canada and Mexico. The market cap of the company is around $11.75B, and institutions own more than 76%. It is trading with a price to earning multiple (P/E) of around 18, with price to book ratio (P/B) of 3.92. In 2012, it clocked a revenue of $13.01B, with the net income being $648M. Corresponding figures for 2010 were $11.20B and $476M respectively, indicating 16% & 36% growth over the period. Consequently, the net margins expanded from 4.24% to 4.98%. The dividend per share (DPS) has grown by around 21% during the period, from $1.64 to $1.98. The DPS announced recently for 2013 is $2.15, a growth of 8.6%. The stock is up 20% over the last one year, and the dividend yield is 2.83%, with the payout ratio being 48%. Five year average yield is 3.5%, and Genuine Parts has an enviable record of continuous dividend payments since its incorporation in 1948. The Price to Earnings Growth ratio (PEG) is 1.9.

Genuine Parts Stock Price Graph
Autoliv (NYSE: ALV) is a supplier of automotive safety systems, and has two main operating segments namely, airbags / seat belts products, and active safety electronics products. This 60 year old company was the first to introduce the two and three-point seat belt system and airbags for front and side impacts. The market cap is around $6.65B, and institutional ownership is in excess of 26%. The P/E is around 13.55, and the P/B is 1.77. The revenue and net income in 2012 were $8.26B and $483M respectively. In 2010, these figures were $7.17B and $591M respectively, indicating that while the revenue growth was 15.30%, the net income declined by 18.2% (margin contraction from from 8.24% to 5.84%). However, the DPS has grown from $1.05 in 2010 to $1.94 in 2012 (85% growth). Despite this, the payout ratio is 37%. The stock has remained flat over the last 52 weeks, and the dividend yield is 2.87%. Five year average yield has been 3.5%, and Autoliv has been paying dividends since 1997 (except 2009). The PEG is relatively high at 4.05.

Gentex (Nasdaq: GNTX), which started in 1974 as a manufacturer of high-quality fire protection products, is a global, high technology electronics company that is vertically integrated in highly automated electronics, CMOS camera development and manufacturing, vacuum coatings, and glass bending and fabrication. It specializes in several technologies and processes to deliver high quality products to the automotive, aerospace and fire protection industries. The market cap is around $2.87B, and institutional ownership is 83%. The P/E is around 17, and P/B is 2.56. In 2012, it recorded a revenue of $1.1B and a net income of $169M. For 2010, the corresponding figures were $816M and $138M respectively. Thus, the growth in revenue and net income has been 34% and 22% respectively, indicating slight reduction in margins from 16.87% to 15.33%. However, the DPS has grown from $0.44 in 2010 to $0.52 in 2012 (18% increase), and the payout ratio is 44%. The stock has declined by around 21% during the last 52 weeks, and the dividend yield is 2.79%. Five year average yield has been 2.7%, and Gentex has been paying dividends since 2003. The PEG is a modest 1.45.

All three companies have a long history of consistent and growing dividend payments. Genuine Parts is the largest company amongst the three, and has shown growth in revenue, net income and margins. It has already announced a 8.6% growth in dividends for the 2013. Autoliv has the lowest payout, market cap to sales ratio, and the lowest P/E, but the PEG is high. The 5 year average yields for both these stocks are excellent. Gentex scores on the PEG front indicating better prospects for capital appreciation, and has also shown good growth in revenue and net income over the last few years. Importantly, it has zero debt on books, and has the highest net profit margin. The market cap to sales is, however, the highest. The payout is modest, and high institutional ownership indicates faith of the smart money.

Stock name Dividend Yield
Genuine Parts 2.85
Gentex 1.70
Autoliv 1.61

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