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.

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.