by Marc Bastow | July 31, 2012 7:30 am
It’s hard not to notice when you’re out on the road that a vast number of cars driving around you are, you know, older looking.
So, as that not-so-late-model Honda Accord flashes by you next time, think about this: Americans are keeping their cars longer and longer, and the average age of cars and light trucks on the road continues to increase.
In fact, according to figures provided by Polk Automotive, an automotive information and marketing company, the trend has been going on fairly steadily now for just over 15 years, with average age for all cars and light trucks combined now well over 10 years old.
Why the move to increase the life of your favorite 1998 Ford (NYSE:F) Mustang Convertible? A couple of factors come into play:
1. Car prices continue to climb. Despite lower interest rates, particularly over the last four to five years, and generous lease terms, the bottom line is lots of people just don’t want to shell out the money to buy new. Does this mean people don’t buy cars? No, it just means they may take longer to make the decision.
2. Carmakers including GM (NYSE:GM), Chrysler (PINK:FIATY) and foreign badges such as BMW and Audi offer “free” maintenance packages as part of the purchase price, hoping to keep up the resale value to you and them whenever you sell or trade.
3. The automotive services and parts aftermarket is chock full of great names offering service and value to consumers who need a friendly mechanic or for those who just want to buy parts and do it themselves.
Savvy investors looking to play in the “vehicle age” game also have a nice range of names to choose from, as the industry continues to grow. Among the choices are stalwarts like AutoZone (NYSE:AZO), AutoNation (NYSE:AN) and O’Reilly Auto Parts (NASDAQ:ORLY). But I like some dividend with my investment, and none of those currently has a payout.
Here are three of my favorite automotive replacement parts supplier names that not only pay a dividend but are also a little bit more diversified and offer a strong history of price appreciation.
Genuine Parts (NYSE:GPC) is an Atlanta-based service organization engaged in the distribution of automotive and industrial replacement parts, office products and electrical/electronic materials. Founded in 1928, the company operates over 2,000 locations throughout the U.S., Mexico and Canada.
Aside from the diversity in product offering, steady quarter-over-quarter growth of just over 11%, and a nice 20% return on equity, GPC keeps humming along for investors, paying dividends since 1948 and increasing distributions on its common stock for 56 years in a row. Today, that dividend stands at 50 cents per quarter, making for a very nice 3% dividend yield.
Cash flow of just over $500 million combined with cash on hand of just about the same leaves plenty of room for growth in both stores and dividend payouts. Plus, a 36% price appreciation on the stock over the last five years blows away a loss on the S&P 500 over the same period.
W.W. Grainger (NYSE:GWW) isn’t what you might call a household name in the automotive parts world, but that doesn’t mean it’s unknown. Grainger was founded in 1928 in Chicago and today is a diversified distributor of maintenance, repair and operating supplies primarily in the U.S. and Canada.
Those supplies include a range of automotive fleet and vehicle parts, tools and supplies. including heavy-duty battery chargers, service jacks and automotive fluids. Grainger also sells automotive electrical kits, lifting kits and diagnostic gear. You can easily outfit your entire garage with Grainger products and rarely see the inside of an automaker’s repair shop.
The best news is Grainger’s diversity, so your money isn’t necessarily tied to one industry or segment. The company’s most recent fiscal year ended with just north of $8.6 billion in revenues and $600 million in profits, all increases over the last three-year period. Recently, Grainger reiterated fiscal 2012 sales guidance of 12% to 14% growth, and it increased EPS guidance to a new range of $10.50 to $10.80. Very nice.
My only reservation on Grainger is the cost of entry, which will set you back to the tune of just over $200 per share for a stock that trades with a 21 price-to-earnings ratio. Maybe that’s not so bad, but it is expensive, particularly for a dividend that has a yield of 1.54%. Investors will want to see continued dividend hikes to try keeping up with the lofty price. In the meantime, a hefty share price gain of 40% over the past year and 138% over the last five years is reason to give the dividend time to catch up.
Advance Auto Parts (NYSE:AAP) is a little like the baby of the group, in that unlike its older brothers (or sisters) AAP is a specialty retailer of automotive aftermarket parts, accessories, batteries and maintenance items primarily operating within the U.S. and truly serving do-it-yourself (DIY) and do-it-for-me commercial customers.
Advance was actually founded by Pep Boys (NYSE:PEP) back in 1928, but has grown on its own to 3,500 stores and more than 51,000 employees generating just over $6 billion in revenues.
But what it lacks in size, it makes up for in grease and grit, earning a whopping 45% return on equity, a 22% quarter-over-quarter growth rate and $792 million in operating cash flow. With a dividend of just 6 cents per share per quarter (and a 0.34% dividend yield), AAP may not look attractive. Yet for investors hoping to fill up on quarterly payouts, the stock is up 28% over the last year and 100% over the last five years, so patience may be a virtue.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.
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