Advance Auto Parts Inc (AAP) has company increased dividends for 15 years. We consider it to be a Growth stock. It has a very low payout ratio and a very good dividend coverage ratio. Because of the unknowns in the economy, we expect this stock, which is focused on keeping cars working, to stay in favor.
GROWTH: AAP’s 5-year average dividend growth rate is 22.6%, wonderfully high versus the dividend universe average of 10.2%. Free cash flow has grown at an average rate of 12.4% per year for the last 5 years versus the dividend universe at 7%, so AAP is performing very well. In fact both Dividend Growth and Free Cash Flow Growth have accelerated for the past 10 years. Earnings have grown every year for the past 5 years. That’s momentum!!
INCOME: AAP’s current dividend yield is .83%, less than half of the average at 2.42%.
SAFETY: We use the Dividend Coverage Ratio to measure the dividend’s safety – higher is better. AAP has a DCR of 4.7 which is very good, more than double the minimum of 2.
VALUATION: The price at time of analysis was $212.06, which is likely “fairly valued.” Based on historical PE, a fair price could be around $224.95–so there may be some upside. Our ‘Value Rating’ for Advance Auto Parts Inc is 3.5 out of 5.0, meaning that both PS and PE moderately indicate value, compared to other dividend stocks available.
TIMING: Currently, AAP has a ‘Medium+ ‘Buy’ Signal’ based on a comparison of current to historical yield and PE values.
QUALITY: Our quality formula gives AAP a ‘Quality Rating’ of 3.2 (out of 5), versus the average of 2.8 for this month’s dividend universe.
TOTAL RETURN: Over the last 15 years, the compound annual growth rate for an investment in Advance Auto Parts Inc was 14.26% per year with dividends reinvested, versus the S&P500 Total Return of around 11% per year for the same time period. As you can see, AAP is doing better than the market with dividends reinvested.
Overall, compared to our universe of dividend stocks, we rate Advance Auto Parts Inc a ‘C.’
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