- Automatic Data Processing is a near-Dividend King with the power to continue raising its dividend.
- The company is a blue-chip operator in the human resources outsourcing arena.
- A history of spin-offs suggests another could come if and when the opportunity arises.
Want to buy the ADP dividend and need more information? This is the right place. Automatic Data Processing is a dividend growth stock of Dividend King caliber and one that has delivered triple-digit total returns for investors. By the end of this article, you will have the information you need to know in order to make an informed decision. Information you won’t find in any ordinary automatic data processing stock quote. The bottom line, however, is that Automatic Data Processing is a blue-chip operator in human resources outsourcing with few direct competitors. Its business is entrenched and its dividend has been growing for almost 50 years.
ADP Stock Overview
Automatic Data Processing got its start in 1949 as Automatic Payrolls, a manual payroll processing service that was soon in high demand. In 1957 the original founders were joined by a 3rd partner skilled in sales and soon the company was growing again. By 1961 it had switched to more “modern” methods including punch cards and mainframe computers that greatly accelerated operations and increased capacity. The company also went public in 1961 with 300 clients and 125 employees. The company’s annual revenues grew to $1 billion in 1985 and investments in new technology were made all along the way. By 2022 the company was bringing in over $17 billion in annual revenue and employed more than 58,000 employees and had a presence in all major international markets.
Growth and IPO
Automatic Data Processing has been growing like mad ever since its IPO in 1961. Its revenue in the first year was roughly $400,000 and that has grown more than 4,150% in the years since. The company’s earnings power and dividend payment has grown in that time as well, helping investors easily build a large dividend stock portfolio.
Acquisitions and Investments
Automatic Data Processing has not made many acquisitions over the years but has made at least two. These investments have helped to round out the business's offerings and improve its use of technology.
- Automatic Data Processing bought Global Cash Card in 2017. Global Cash Card is a digital payment processor.
- Automatic Data Processing bought Workmarkets in 2018. Workmarkets is a New York-based platform for managing freelance and contract employees.
Automatic Data Processing Spin-offs
Automatic Data Processing has enhanced its shareholder value over the years by spinning off two businesses.
- Broadridge Financial Solutions was spun-off in 2007. Broadridge Financial Solutions is a brokerage service group
- CDK Global was spun-off in 2014. CDK Global provides technology and services to automotive dealerships.
ADP Payout History (Paid, Declared, and Estimated)
Automatic Data Processing is a Dividend Aristocrat bordering on Dividend King so it has a long history of dividend payments and sustained annual distribution increases. In fact, it is possible that ADP has become a Dividend King stock since this page was first written which means 50 years of consecutive dividend increases. This is a badge of honor worn by companies with the foresight and management to sustain a dividend increase for 50 years and increase it every year.
Automatic Data Processing pays its dividend on a quarterly basis for 4 payments each year. The distribution increase tends to come in December each year, along with or near the fiscal 2nd quarter earnings release.
Automatic Data Processing Competitors
- Paycor - Paycor is an HCM or Human Capital Management software as a service provider.
- Paychex - Paychex is an HCM company and Human Resources outsourcing service.
Price History and Performance
Automatic Data Processing’s price history has its shares of ups and downs but it is clear the ups outpace the downs by a very wide margin. Aside from the 2000 to 2009 period that was dominated by a wider rolling bear market caused by the Tech Bubble and then the Housing Bubble, and periodic corrections, this stock has only moved higher. Investors who bought in 2009 have seen their shares rise more than 650% not counting the dividend payments and the stock is still indicated higher.
ADP Dividend History - Compounding Growth
Automatic Data Processing is a solid dividend payer that has been growing its distribution for about 50 years. The track record of distribution increases alone is enough to tell investors it’s a safe payout and the metrics back that up. The company was paying about 58% of its earnings in late 2022 with earnings growth in the forecast. The payout CAGR was running about 13% at the time which is a relatively high CAGR for a stock that has been increasing its payout for so long. Choosing between a dividend king vs aristocrat? It comes down to the number of years of increases more than anything else but Aristocrats are also S&P 500 stocks.
No Comparisons For ADP Dividend Aristocrat Status
When it comes to comparisons to Automatic Data Processing’s dividend there really aren’t many. The dividend yield, payout ratio, and years of increases can be bettered but not by any direct competitor. Direct competitors exist but, if they even pay a dividend, it doesn’t come with the same pedigree. The closest competitor with a dividend is Paychex which was yielding more than Automatic Data Processing in late 2022 but had a far less attractive outlook for distribution growth.
Automatic Data Processing Buys Back Stock
Automatic Data Processing also buys back stock which is a boon to investors. Buybacks take shares out of the market and increase the value of those that remain. This is helping to support the share price and is a significant factor in the stock's sustained price increases. The buyback program is also a factor in the stock's volatility and why it has a beta below 1.0. A beta below 1.0 means the stock is less volatile than the S&P 500 index.
ADP Stock: Risk And Returns
The biggest risk for Automatic Data Processing investors is competition. Competition for outsourcing and payroll services is heating up and the cloud is a big part of this. Aside from that, ADP is a well-established blue chip player in this arena and not likely to fall by the wayside. It has been shifting toward digital and the cloud for years and is well-positioned for modern times.
ADP Dividend Growth CAGR
Understanding CAGR is important to dividend stocks and how they work. The Automatic Data Processing stock CAGR or compound annual growth rate is the average rate at which the dividend distribution has grown. Usually expressed in terms of years, the CAGR tells investors how fast the dividend is growing. Stocks with otherwise equal qualities may be set apart by the CAGR. A stock with a higher CAGR is growing its dividend at a faster pace and therefore may deserve a higher valuation. Regardless, dividend growth stocks help offset the rot of inflation by giving an ever-increasing return on the original dollar invested. The higher the CAGR the more safety the stock will bring and perhaps even enough to fully offset inflation and more.
ADP had been able to maintain a CAGR greater than 10% despite its long history of dividend increases. This is both good and bad as it may indicate a need to slow the pace of growth in the coming years. Longer-term, a lower CAGR is better becomes it means the distribution growth strategy is more sustainable in all market conditions.
Dividend Capture Strategy for ADP
The ADP stock dividend capture strategy is easy to understand but hard to execute successfully. The strategy aims to earn or “capture” the dividend payment while owning the stock for as little time as possible, as little as 1 day if possible. To execute the strategy, traders must buy the stock before the ex-dividend day to earn or capture the dividend. To exit, the position is sold on the ex-dividend date, which is the hard part.
- The Date Of Record is the day that owners of record, those that buy the stock by the end of the regular session on the day prior to the ex-dividend day, earn the dividend. Investors who buy on the ex-dividend day, date of record or the following day will have to wait until the next dividend declaration to earn any income.
- The Ex-Dividend Date is the day before the Date Of Record. Investors who buy the stock before this day will earn the upcoming dividend payment but must hold the stock at least until the day of record.
Dividend growth stocks like Automatic Data Processing are widely held and followed for a single reason, the dividend. This means the dividend payment is often priced into the market going into the date of record and gets priced out as soon as the market opens. This means traders may end up selling their positions at a loss and perhaps a big enough loss that offsets the money earned using the strategy.
Automatic Data Processing Is As Good As A Dividend King
Automatic Data Processing doesn’t have enough dividend increases to qualify as a Dividend King yet but it is as good as a Dividend King anyway. The company has increased the payment for more than 45 years and has the cash flow, free cash flow, and earnings to ensure it will reach 50 years and more. In regard to business, it is an essential service for thousands of businesses worldwide and is in no danger of becoming obsolete. If anything, Automatic Data Processing will continue to dominate the human resources outsourcing arena for many decades into the future.
Companies Mentioned in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|Automatic Data Processing (ADP)||$237.24||-1.2%||2.11%||28.93||Hold||$250.62|
About Thomas Hughes
Thomas got his start with the markets while working as a Chef. In 2005 a chance invitation to attend the seminar “How To Buy And Sell Your Own Stocks” altered his worldview. Soon trading and stocks consumed his every waking moment to the point of excluding all else. Thomas now enjoys a much different lifestyle engaged in his true passion, uncovering great investments.