Dividend Kings In Focus: Real Components

Up to date on September 14th, 2023 by Samuel Smith

To ensure that an organization to develop into a Dividend King, it will need to have an extended monitor document of producing regular dividend progress, even throughout recessions. That is removed from a straightforward job, which makes it all of the extra spectacular for a corporation to achieve the standing of a Dividend King.

It ought to be no shock that we take into account the Dividend Kings to be among the many highest-quality dividend shares in the whole inventory market.

Wit this in thoughts, we created a full listing of all 50 Dividend Kings, together with essential monetary metrics corresponding to dividend yields, payout ratios, and price-to-earnings ratios. You possibly can obtain the complete listing by clicking on the hyperlink under:

Real Components Firm (GPC) has elevated its dividend for 67 consecutive years, giving it one of many longest streaks of annual dividend raises in the whole inventory market. It has achieved this progress with a high model in an business that has seen constant progress over a few years. There stays a transparent path forward for continued progress significantly as automobiles age.

Real Components inventory seems barely undervalued these days, shares provide a yield above the market common, and a excessive chance of continued dividend hikes for a few years, along with a strong progress forecast.

Enterprise Overview

Real Components traces its roots again to 1928, when Carlyle Fraser bought Motor Components Depot for $40,000. He renamed it, Real Components Firm. The unique Real Components retailer had annual gross sales of simply $75,000, and solely 6 workers.

Immediately, Real Components has the world’s largest world auto elements community, with greater than 10,600 places worldwide. Real Components generates annual income of almost $23 billion as a serious distributor of automotive and industrial elements.

Supply: Investor Presentation

It operates two segments, that are automotive (contains the NAPA model) and the economic elements group which sells industrial substitute elements to MRO (upkeep, restore, and operations) and OEM (unique gear producer) prospects. Prospects are derived from a variety of segments, together with meals and beverage, metals and mining, oil and fuel, and well being care.

Real Components reported second quarter earnings on July twentieth, 2023, and outcomes have been considerably blended. Adjusted earnings-per-share got here to $2.44, which was 9 cents higher than anticipated. Nevertheless, income was up solely 5.6% year-overyear to $5.9 billion, which missed estimates by $60 million.

Comparable gross sales have been up 4.9%, whereas acquisitions added 1.8%, and the influence of foreign exchange translation diminished income progress by 1.1%. Automotive gross sales rose 5.4%, whereas industrial gross sales have been 5.9% greater. Web earnings was $344 million, which was decrease than the $373 million from a 12 months in the past.

The corporate up to date steering for the complete 12 months, now anticipating income progress of 4% to six%, which is off from 6.1% analyst consensus. Earnings-per-share, nevertheless, is now anticipated to be $9.15 to $9.30, which is up from the prior vary of $8.95 to $9.10.

Development Prospects

Real Components is primed for achievement, because the setting for auto substitute elements is extremely supportive of progress. Shoppers are holding onto their vehicles longer and are more and more making minor repairs to maintain vehicles on the street for longer, quite than shopping for new vehicles.

As common prices of car restore enhance as a automobile ages, this immediately advantages Real Components. And, as newer automobiles develop into increasingly more costly, that makes it extra probably for patrons to maintain older vehicles for longer.

In accordance with Real Components, automobiles aged six years or older now signify nearly all of vehicles on the street. This bodes very properly for Real Components. As well as, the full addressable marketplace for automotive aftermarket services and products and business merchandise may be very giant, and fragmented, which leaves loads of alternative for enlargement.

Supply: Investor Presentation

Real Components has a large portion of the $200 billion and rising automotive aftermarket enterprise. One particular manner Real Components has captured market share on this house has traditionally been acquisitions.

It continuously acquires smaller corporations, within the U.S. and within the worldwide markets, to spice up market share in current classes or increase in new areas. Real Components has made a number of acquisitions over the course of its historical past.

Supply: Investor Presentation

These acquisitions have helped result in earnings progress every of the final 10 years. For instance, Real Components acquired Alliance Automotive Group for $2 billion. Alliance is a European distributor of car elements, instruments, and workshop gear.

This was a sexy acquisition, as Alliance Automotive holds a high 3 market share place in Europe’s largest automotive aftermarkets: the U.Ok., France, and Germany. The deal added $1.7 billion of annual income to Real Components, together with further earnings progress potential from price synergies.

In 2018, Real Components agreed to purchase Hennig Fahrzeugteile, a Germany-based provider of sunshine and industrial automobile elements. The acquisition expanded Real Components’ attain in Europe, and likewise gave it additional publicity to the industrial market. Real Components expects the acquired firm will enhance its annual gross sales by $190 million.

Extra not too long ago, Real Components has made a number of acquisitions that ought to add to the corporate’s management place in a number of completely different markets. In 2019, Real Components accomplished its acquisition of PartsPoint. Based mostly within the Netherlands, PartsPoint is a number one distributor of automotive aftermarket elements and equipment.

The corporate accomplished its buy of main industrial distributor Inenco in 2019. Inenco has operations in Australia, New Zealand and Indonesia. Later that month, Real Components introduced it was including Todd Group, a frontrunner within the heavy-duty aftermarket section in France.

General, it’s clear that Real Components’ a number of acquisitions have helped the corporate generate long-term progress. The outcomes of Real Components’ progress technique communicate for themselves. Whereas we don’t know what acquisitions could also be on the horizon, even with out them in 2022, comparable gross sales are driving sturdy progress.

Real Components divested its S.P. Richards US operations and its Security Zone and Influence Merchandise operations, because it continues to optimize its portfolio to concentrate on its core automotive and industrial elements companies. We anticipate Real Components to generate 6% annual earnings-per-share progress over the subsequent 5 years.

Aggressive Benefits & Recession Efficiency

The largest problem going through the economic system continues to be provide chain points stemming from the pandemic, however whereas the economic system recovers, Real Components’ outcomes are bettering as properly. So far, Real Components appears to not be closely impacted by these points.

The opposite menace to bodily retailers is e-commerce competitors, however automotive elements retailers corresponding to NAPA will not be uncovered to this danger. Automotive repairs are sometimes complicated, difficult duties. NAPA is a number one model, thanks partially to its status for high quality merchandise and repair. It’s invaluable for patrons to have the ability to ask inquiries to certified workers, which supplies Real Components a aggressive benefit.

Real Components has a management place throughout its companies. All of its working segments signify the #1 or #2 model in its respective class. This results in a powerful model, and regular demand from prospects.

Real Components’ earnings-per-share throughout the Nice Recession are under:

2007 earnings-per-share of $2.98
2008 earnings-per-share of $2.92 (2.0% decline)
2009 earnings-per-share of $2.50 (14% decline)
2010 earnings-per-share of $3.00 (20% enhance)

Earnings-per-share declined considerably in 2009, which ought to come as no shock. Shoppers are likely to tighten their belts when the economic system enters a downturn.

That stated, Real Components remained extremely worthwhile all through the recession, and returned to progress in 2010 and past. The corporate additionally generated money move throughout the coronavirus pandemic, which allowed it to lift its dividend in 2020.

There has at all times been a sure degree of demand for automotive elements given their consumable nature, which supplies Real Components’ earnings a excessive ground.

Valuation & Anticipated Returns

Based mostly on our anticipated earnings-per-share of $9.25 for 2023, Real Components has a price-to-earnings ratio of 16.1. Our honest worth estimate for Real Components is a price-to-earnings ratio of 18.0. Consequently, Real Components seems barely undervalued these days. An increasing valuation a number of would positively influence future returns to the tune of two.3% per 12 months over the subsequent 5 years. Thankfully, Real Components’ whole returns may also embody earnings progress and dividends.

We anticipate Real Components to develop its earnings-per-share by 6% yearly over the subsequent 5 years. The inventory has a 2.6% present yield, which is considerably greater than the typical yield of the S&P 500 Index. Moreover, Real Components raises its dividend annually, together with a 6.1% enhance anticipated for 2023. Real Components Firm’s dividend progress streak now stands at 67 consecutive years.

Real Components has a extremely sustainable dividend. The corporate has paid a dividend yearly because it went public in 1948. The dividend is prone to proceed rising for a few years to return. That stated, traders must also take into account the influence of valuation relating to a inventory’s whole returns.

Based mostly on out outlook for the subsequent half decade, Real Components’ whole annual returns would include the next:

6% earnings progress
2.6% dividend yield
2.6% a number of enlargement

In whole, Real Components is predicted to supply a complete annual return of 11.2% by means of 2028.

Remaining Ideas

Real Components has an extended historical past of regular progress, because it has benefited from rising demand for automotive elements. The getting older automobile fleet within the U.S. ought to present continued progress shifting ahead. Within the meantime, shareholders ought to obtain annual dividend will increase as has been the case for 67 consecutive years.

Whereas we discover the inventory overvalued, that means now will not be the perfect time to purchase Real Components, we’d advocate the inventory after a decline within the share value. Nonetheless, Real Components has a strong dividend yield of two.6% and affords annual dividend will increase, making it a worthwhile holding for income-focused traders.

Further Studying

The next databases of shares include shares with very lengthy dividend or company histories, ripe for choice for dividend progress traders.