Automatic Data Processing: Dividend Raised for 35th Year in a Row

Automatic Data Processing (ADP) reported better than expected fiscal first quarter earnings (see earnings call transcript here) and hiked their dividend 3% to $0.34/share per quarter. This is the 35th year in a row that ADP has raised their dividend. Mounting unemployment in the U.S. continues to have an impact on ADP's revenues, as fewer workers for their clients means less fees to ADP.

ADP has forecasted EPS for fiscal 2010 to come in at about $2.37 per share. The stock is currently trading at 18.3x that forward earnings number and yielding 3%. The current dividend pay out indicates a pay out ratio of 57% on estimated 2010 earnings.

The stock is up 8% since I started a position in ADP inside my wife's RRSP. An interesting thing to note is that this stock seems to have really taken off despite the fact that US unemployment is at best flattening out. Could this be an indicator of the next 6 months to one year? Time will tell. If the job market turns up slower than expected, or stays at depressed levels, ADP could suffer.

Disclosure: My wife owns shares of ADP in her RRSP.

Comments

[cyclingscholar:]

I think you are correct about ADP perhaps sniffing an employment peak six months in advance. In addition, Mr. Moneygardener, it probably realizes that health care reform, and other programs under OBama and congress, will make payroll processing even more difficult for companies and profitable for ADP.

Nov 13 10:01 AM

[JKS21:]

My common sense tells me that this stock had a $50 high in the last 5 years. It is already at $43.50, how much can we expect from the stock in the long term given its performance over the last 5 years ?

Nov 13 05:01 PM

[ECONOMICS 101:]

Johnathan Vrozos said, "stock price aside, great dividend story"!!

Nov 14 09:02 AM

[bobbybutte:]

as a person who is financially independent solely from dividend investing and recommended ADP in July which is documented in my newsletter

Stock is very rich in this market and there are much better investments now

Nov 14 10:43 AM

[berloe:]

I had it; sold it; made a pittance. Shud have kept it. Ditto PAYX.
BobbyButte makes sense.

Nov 15 02:38 PM