February Dividend Purchase

Introduction

Inspired by the dividend growth investor, 18 months ago I began investing €1000 a month into high quality dividend champions. As part of my 2020 goals, I intend on increasing my monthly installments to €1250 per month. To achieve this I am actively tracking my expenses to help make better purchasing decisions with the added bonus of been able to invest more money each month.

In my current workplace, I am paid on a monthly basis and I automatically remove €1k to a different account which I only uses investments. As this is automatically done, I never see this money in my every day current account. For this year I will still leave the automatic standing order at 1K but I hope to have at least €250 left in my account from the previous month which I can use to bring my investment up to €1250.

My Initial Process

There is a fantastic website called dripinvesting.org where The Dividend Champion List spreadsheet was created by the late David Fish and is now currently updated by Justin Law. I use this list to whittle down my selection process to a handful of companies so I can do some further research.

I have a couple of Parameters.

1. Yield is at least 1.75 times the S&P 500 Dividend Yield – https://www.multpl.com/s-p-500-dividend-yield
2. Uninterrupted dividend raising streak for at least 15 years
3. The Dividend Growth Rate is steady over 10 years
4. Current yield + Dividend Growth Rate > 8%
5. Safe dividend with the dividend payout no more than 60% of free cash flow

Luckily, as I am an engineer, this is pretty much Automated, where I can just download the latest spreadsheet, store it in a database and let the power of my C# application filter the companies down to no more than 15 companies. This months list for further research are:

1. Cullen/Frost Bankers
2. Genuine Parts Co.
3. Eaton Vance Corp
4. Community Trust Banc
5. Weyco Group Inc
6. Franklin Resources

Companies for further research

There was 6 companies on my list based on my selection criteria.  Out of the 6 companies and I have shares in EV, CTBI, and WEYS. Having 50% of the companies on the list really makes the research a little bit easier because I would have done most of the research on these companies before. The question I have now is whether to increase the position in some of my existing companies or maybe go with a new company.

Company Overview

 Genuine Parts Company (GPC) distributes automotive parts and materials throughout North America, Australia and parts of Europe. The company is currently a dividend king with a whopping 63 annual dividend increases. The business appears to be balanced fairly well as 55% of sales is coming from the automotive market, while 35% is coming from the industrial part of the business. The remaining 10% comes from its business products.

Distributions

As mentioned before, the company is a dividend king which has raised its dividends for 63 years straight. The last dividend happened in February 2019 where they raised the quarterly distribution by 5.90%. The 10 year annual dividend raises is 6.6% . During the same time the earnings have increased from $2.93 to $5.65.

Longer term the company could benefit from rising number and increased complexity of automobiles. The company seems to be very conservative in its finances and has a low level of debt coupled with strong cash flow from operations to fund future dividend increases. The dividend payout ratio has remained largely between 45% to 55% over the past decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Transaction

I intend on buying 10 shares in GPC on Monday the 10^th Feb when the markets open.

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