Genuine Parts Plans to Continue Paying Its Regular Dividend
Genuine Parts (GPC) distributes automotive parts (57% of sales), industrial parts (34%), and business products (9%).
While these segments are each classified as "essential" businesses and have remained open, the coronavirus pandemic has significantly affected the market conditions across Genuine Parts' operations.
Fewer miles are being driven (reduces auto repairs), cyclical industries (oil & gas, mining, etc.) are slowing their activity, and businesses are pulling back on purchases of office furniture and supplies.
On April 6, management provided a business update and reassured income investors that this dividend king would continue providing reliable dividends despite this unprecedented environment:
While these segments are each classified as "essential" businesses and have remained open, the coronavirus pandemic has significantly affected the market conditions across Genuine Parts' operations.
Fewer miles are being driven (reduces auto repairs), cyclical industries (oil & gas, mining, etc.) are slowing their activity, and businesses are pulling back on purchases of office furniture and supplies.
On April 6, management provided a business update and reassured income investors that this dividend king would continue providing reliable dividends despite this unprecedented environment:
"Through these actions and our on-going working capital initiatives, the Company has the liquidity to operate through these uncertain times as well as continue to pay the dividend." – Chairman and CEO Paul Donahue
Visibility remains very low, and management anticipates the sales environment to slow further due to COVID-19 and the decline in global economic activity.
To help offset some of these pressures and preserve cash, Genuine Parts is taking the following actions:
- Reducing capex by $150 million to $200 million in 2020
- Temporarily suspending share repurchases
- Limiting M&A for the remainder of the year
- Expanding its cost savings plan by $100 million for this year
The company also highlighted its solid liquidity position. Debt maturities appear manageable over the next two years, and Genuine Parts' cash and unused credit capacity total $1 billion. For context, Genuine Parts' dividend costs about $460 million annually.
Looking ahead, management anticipates vehicle miles driven to "strongly recover as the pandemic passes," driving demand higher for its automotive replacement parts.
Meanwhile, the industrial parts segment has performed somewhat better thus far thanks to its diversified end markets. This helps Genuine Parts generate some cash during these lean times.
Genuine Parts will provide more information when it reports first-quarter results on May 6, but dividend investors can breathe a little easier given management's ongoing commitment to the company's 64-year dividend growth streak.
