Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Dividend Aristocrats Part 43: Automatic Data Processing (ADP)

Page 1 of 3

Automatic Data Processing (NASDAQ:ADP) was founded in 1949 in Patterson, New Jersey. The company provides businesses of all sizes with payroll, tax, and human resource services and software.

ADP has grown rapidly since 1949. The company now processes payroll for 1 in 6 (24 million total) workers in the United States, and another 12 million internationally. Over the last decade, ADP stock has compounded investor wealth at 13.2% a year.

ADP

This article examines ADP’s dividend, competitive advantage, growth prospects, recession performance, and valuation.

ADP has registered a decline in popularity among smart money investors as of late. At the end of September, 32 funds (out of some 730 tracked by Insider Monkey) held long positions in ADP, down from 42 funds a quarter earlier. These funds reported stakes with a total value of $957.22 million as of the end of the third quarter, which represented around 2.60% of the company’s outstanding stock. Andy Brown’s Cedar Rock Capital, David Harding’s Winton Capital Management, and Cliff Asness’ AQR Capital Management reported sizeable positions in ADP in their last 13F filings.

ADP Dividend Analysis

ADP has increased its dividend payments for 41 consecutive years, making the company a Dividend Aristocrat. The image below shows the company’s quarterly dividend history since 1983.

ADP Dividend History

The company currently has a payout ratio of ~60% and a 2.7% dividend yield. ADP’s dividend yield is 0.5 percentage points above the S&P 500’s dividend yield of 2.2%.

The company’s payout ratio is generous without being overly aggressive. ADP’s management is targeting a payout ratio in the 55% to 60% range. This means dividends are likely to grow in line with earnings-per-share going forward.

ADP’s payout ratio wasn’t always so high. The company has expanded its payout ratio from 33% in 2005 to the 55%+ since 2010. With that in mind, take a look at the company’s long-term dividend yield history below:

ADP Dividend Yield History

The effects of the company’s payout ratio hikes are evident in its dividend yield history. ADP’s average dividend yield since 2010 is 2.4%. As mentioned above, the stock currently has a 2.7% dividend yield.

Business Segment Overview: PEO & Employer Services

ADP operates in two primary business segments. Each segment is shown below along with percentage of total earnings generated for ADP in its 1stquarter of fiscal 2016:

– Employer Services generated 87% of earnings

– PEO Services generated 13% of earnings

Both segments provide payroll, human resources, and compliance services to ADP’s customers. The PEO Services segment operates by creating a shared tax ID number with its small and medium sized business customers.

The Employer Services segment manages payroll (and other human resources and compliance activities), but does not create a shared tax ID number for its clients. That is the primary distinction between the two segments.

Follow Automatic Data Processing Inc (NASDAQ:ADP)
Trade (NASDAQ:ADP) Now!
Page 1 of 3

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...
X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!