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The 10 Most Recession-Proof Dividend Aristocrats

#9 – Automatic Data Processing

  • 2007 through 2009 total return of 6.6% (versus -15.9% for the S&P 500)
  • 2007 through 2009 maximum drawdown of 35.8% (versus 55.2% for the S&P 500)

It is true that businesses lay off workers during recessions. Of course, not allworkers are laid off. No matter the economic environment, businesses must process payroll.

That’s what makes Automatic Data Processing (NASDAQ:ADP) so resilient. The company’s primary service is a necessity for the businesses it serves. Automatic Data Processing provides payroll, human resources, and tax software and services to over 620,000 customers in 125 countries.

Automatic Data Processing is one of the few businesses that managed to grow earnings-per-share each year through the Great Recession of 2007 to 2009. The company’s earnings-per-share during this time are shown below:

  • 2007 earnings-per-share of $1.83
  • 2008 earnings-per-share of $2.20
  • 2009 earnings-per-share of $2.39

The human resources services Automatic Data Processing (NASDAQ:ADP) provides its customers are too important to cut back on during recessions. This keeps the company’s earnings up regardless of the overall economic climate. The Great Recession is not the first recession through which Automatic Data Processing has grown. The company has paid increasing dividends for… 40 consecutive years.

Over the last decade, Automatic Data Processing (NASDAQ:ADP) has compounded its earnings-per-share at an annual rate of 6.3%. Dividends have grown much faster, at an annual rate of 13.3% a year. The company currently has a payout ratio of 63%, so future dividend growth should be closer in line to earnings-per-share growth.

Automatic Data Processing’s growth going forward will come from overall economic growth and increased need for human resource services due to ever-growing regulation from the government.   When small businesses feel they cannot keep up with increased regulatory burdens, Automatic Data Processing is there to help (for a price, of course).

Despite its reliable growth driver (increasing government regulation), and its long history of growth and recession resistance, Automatic Data Processing stock has one drawback – it is trading at a price-to-earnings ratio of 25.4, well above the S&P 500’s current price-to-earnings ratio of 18.8. Value investors Tom Gayner and Joel Greenblatt are currently among the top 5 holders of the stock in Insider Monkey’s database.

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