ADP stock analysis & review of the ADP dividend
ADP is one of the leading payroll companies in the U.S. We have written a thorough analysis of the company’s financial performance, competitive position, and valuation. You can also read this article on the web, on our mobile app, or by downloading our free iPad app.
ADP Corporation (ADP) is a forward-looking company that provides human capital management services to the U.S. payroll market. It provides payroll services, including payroll administration, workforce planning and payroll tax processing, but in the process, it also receives a fee for payroll-related services. As of March 31, 2017, the company had $3.9 billion in assets, and it operates in six segments: North America, International, Central Office, Payroll Tax, Payroll Tax Processing and Other. The company was founded in 1883 and is based in Woodland Hills, California.
History of ADP Dividends, Growth Rate, Safety, Stock Value, & More!
Today’s topic is ADP stock analysis, and we’ll also look at the ADP dividend.
Stocks of high quality are seldom inexpensive. And I consider ADP, a payroll and human resources services business, to be a high-quality dividend investment.
In addition, an ADP dividend stock analysis may be completed. We’ll go into ADP dividend measures, company fundamentals, ADP stock value, and a lot more!
Because these are all crucial factors to consider while looking for the greatest dividend stocks. But first, let me go over a few important things.
I may get compensation for purchases made via links in this article at no cost to you.
Key Takeaways: ADP Stock Analysis & Dividend Review
1. ADP’s sales and profit growth were momentarily halted due to the global crisis and job losses.
2. However, expansion has continued. And, in the long run, I believe 8% annual profit growth is achievable.
3. Since 1975, ADP has raised its dividend every year. The business will become a Dividend Aristocrat.
4. The dividend yield isn’t very high (less than 2 percent ). However, the dividend growth rate has been impressive. And the likelihood of receiving a payout is extremely high.
5. ADP stock seems to be expensive, as usual. However, I think ADP is one of the best dividend companies to purchase for long-term income investors. Especially in the event of a stock price drop.
With that, we’re done with the highlights. Let’s get into the specifics.
Because understanding what you’re doing with your money is good money management. And I manage my whole financial picture for free using Personal Capital.
Background Information on ADP
ADP provides a comprehensive set of services and solutions in the areas of human resources and payroll. Among them are the following:
- Processing of payroll
- Time & attendance record keeping
- Management of talent
- Administration of employee benefits
- Consulting, outsourcing & technology integration
These services are available to companies of all sizes and in a variety of sectors.
Paychex and ADP are in the same industry. Paychex is another high-quality business with a strong dividend growth track record.
Symbol for ADP
First and foremost, ADP stands for Automatic Data Processing, which is the entire name of the business.
These letters are also used to trade the company’s shares.
Finally, it is listed on the New York Stock Exchange (NASDAQ). (ADP) is a stock traded on the New York Stock Exchange.
Future Dividend Growth Is Supported by ADP’s Strategy
ADP expects long-term revenue growth in the areas where they operate. Their expansion will be fueled by the following factors:
- Human resource management software that runs on the cloud
- Outsourcing human resources
- Expansion into other countries
ADP plans to mix revenue growth with cost-cutting measures. Expense savings will come from the following sources:
Moving ahead, this combination of variables should result in consistent yearly profit growth.
What about ADP’s dividend, though? That’ll be the next subject…
Is ADP Stock Dividend Paying?
Yes. ADP is a dividend-paying company. And it’s been paying a dividend for a long time.
For a long period, the company’s dividend history, dividend growth rate, and dividend safety have pleased me. Let’s take a look at why.
What Is ADP’s Per-Share Dividend Rate?
ADP pays a $3.72 per share yearly forward dividend.
The most recent quarterly dividend authorized by ADP’s board of directors is the yearly forward dividend. Divided by the number of times the business distributes its dividend each year.
Dividend Yield of ADP
At the current market price, ADP stock has a dividend yield of 1.7 percent.
The yearly forward dividend rate is used to determine a company’s dividend yield. Then divide it by the price of the stock.
Dividend yields fluctuate a much. As well as moving in the opposite direction of the stock price. So, for dividend stock investors, decreasing stock prices are generally a positive thing.
We get a greater dividend yield when the stock price is lower. Also, the stock has a reduced purchasing price.
It’s a “win-win” situation. Assuming, of course, that the company’s dividend is secure. In addition, the dividend will continue to increase.
ADP pays dividends on a regular basis.
ADP distributes dividends every three months or four times a year. Each quarterly dividend payment is equal to one-quarter of the yearly dividend rate.
This is a common dividend distribution schedule. At least in the case of dividend equities located in the United States.
Many businesses outside the United States, on the other hand, do not follow this trend. During the year, they issue dividends less often.
When Does ADP Pay Dividends?
Dividends are paid four times a year: in January, April, July, and October.
The dividend is given on the first day of these months.
It makes no difference whether the first of the month is a weekend or a holiday. You can rely on receiving your dividends on the first day of the month!
Ex-Dividend Date for ADP
If you want to buy ADP shares, you must do it before the ex-dividend date. If you wish to get the next stock dividend, you must do so.
It makes no difference whether the dividend is paid in January, April, July, or October.
The ex-dividend date for ADP is one month before the quarterly dividend is paid. December, March, June, and September are the months in question.
Approximately every ten days during these months, ADP stock goes ex-dividend. In any way, give or take a day or two.
Because ADP’s ex-dividend date varies from quarter to quarter. For the most up-to-date information, go to the ADP investor relations page.
Are you, on the other hand, a buy-and-hold dividend stock investor like me? You shouldn’t be concerned if this is the case.
Based on the number of shares of ADP stock you hold, you will receive any dividends that the company authorizes. Dividends are an excellent source of passive income in this respect.
Make a financial investment. Don’t do anything else. Dividends are paid out. As the phrase goes, “rinse and repeat.”
Now for some background on ADP’s dividend…
ADP Dividend History
In 1974, ADP began paying a regular cash dividend.
The dividend was then raised for the first time in 1975. Since then, the business has continued to raise its dividend every year.
ADP Is An Aristocrat Of Dividends
ADP is a Dividend Aristocrat business because of the number of yearly dividend increases.
Dividend Companies that have raised their dividends for at least 25 years in a row are considered aristocrats.
Will ADP Become The King Of Dividends?
If ADP can raise its dividend every year for the following several years, it will be named Dividend King for the first time.
Dividend Kings are a unique and wonderful company. They’ve raised their dividends for at least 50 years in a row!
As a result, we know that ADP has a solid track record of growing dividends over time. However, how does the dividend growth rate look?
Let’s have a look at it next…
Dividend Growth Rate of ADP
There are a few positive elements to ADP dividend growth. They’re listed in Table 1 below.
ADP Compound Annual Dividend Growth Rate (Table 1)
|1 Year||3 Years||5 Years||7 Years|
First and foremost, I believe that the last seven years have seen a good run of dividend growth.
In addition, the rate of dividend increase has accelerated in recent years.
Finally, nothing beats excellent dividend growth companies for boosting a dividend investor’s passive income!
And, in my opinion, ADP has a fantastic track record. A lengthy history of dividend increases attests to this. And there’s a recent track record of fast dividend increase.
However, the news isn’t all positive. Here’s why…
Increase in the ADP Dividend
Another dividend increase has been announced by ADP. This is for the fiscal year 2021.
The dividend rate rose by just 2.2 percent this time. Why is there such a little increase?
Because of the worldwide health problem, it has created a recession. ADP’s business has suffered as a result.
Their sales growth has significantly halted. Because it is linked to the global economy’s employment levels. In addition, the company’s future prospects grew less certain.
As a result, they “tugged on the reins.” For the time being, the increase in quarterly dividend payments has been halted.
Dividend Policy of ADP
I like it when a business expresses its dividend payment goals clearly. Many businesses opt not to do so, however ADP has performed well for us in this regard.
ADP is aiming for a dividend payment ratio of 55 percent to 60 percent, according to their investor presentation. As a result, we can see how ADP’s earnings are increasing. Our dividend payouts will increase as well.
In a minute, I’ll go through the dividend payout ratio. But first, let’s take a look at the company’s financial fundamentals as given by its public financial reporting.
Let’s begin with income. Because rising dividends are derived from rising profits, which are derived in part from rising sales.
Revenues from ADP
As seen in the graph below, revenue growth has remained consistent.
Chart 1: ADP Revenue Trends Over 7 Years
It is made up of three major segments:
- Employer organization that is professional
- Services for employers
- Holding client money generates interest.
First and foremost, ADP’s Professional Employer Organization (PEO) sector has increased revenue. Small and mid-sized companies may benefit from this segment’s extensive HR solutions.
Additionally, income comes from the company’s more conventional employer services division. Payroll processing is included in this section.
Employer services is the biggest sector, although it is slowing down. This sector boosts income mostly by adding new customers to its database.
Finally, ADP earns money from the interest generated on the cash placed by their customers in their payroll accounts. This is due to the time it takes for a customer to deposit money with ADP for payroll. Compared to when the money is really given to the workers.
Finally, the amount of interest generated on customer money has decreased. Because interest rates have never been lower.
ADP Revenue by Business Segment (Graph 2)
The figure above shows the revenue breakdown for each of these three categories. Despite the fact that interest on money is decreasing. As you can see, it’s just a tiny portion of the pie.
Next, we’ll look at ADP’s profits, cash flow, and dividend payout ratios.
ADP Earnings-Based Dividend Payout Ratio
Earnings have increased significantly, as seen in the graph below. Over the past seven years, ADP’s profits per share have almost doubled.
ADP Dividends Per Share vs. Earnings Per Share (Chart 3)
In recent years, ADP earnings have benefitted from a robust US economy and ample employment.
The company’s dividend has risen in lockstep with its profits. ADP’s dividend payment ratio has been hovering around 55 percent to 60 percent. This performance is in line with ADP’s previously stated dividend policy declaration.
In general, a smaller dividend payout ratio is preferable. It demonstrates that the business has plenty of opportunity to increase the dividend in the years ahead. Alternatively, they might endure a decrease in profits without having to cut their payout.
Next, let’s compare ADP’s dividends to its cash flows…
Dividend Payout Ratio of ADP Using Free Cash Flow
Dividends are given out of cash rather than profits. As a result, comparing a company’s dividends to its cash flow is a smart idea.
ADP Dividends And Cash Flows (Graph 4)
ADP’s capital investment requirements are low since it is a service company. When compared to other dividend-paying businesses, such as a utility company, it is a bargain.
So, what’s the dividend payment ratio in terms of free cash flow as a percentage? As a proportion of accounting profits, it’s much smaller.
How ADP Distributes Its Funds
To begin with, as indicated in the graph above, dividend payments account for just approximately half of free cash flow. This is excellent news for dividend investors.
In addition, ADP cites the following financial objectives in a recent investor presentation:
- Invest in the company to increase organic sales and margins.
- Invest in acquisitions to round out your skills and strategy.
- Dividends and share repurchases are two ways to provide cash to shareholders on a regular basis.
Finally, item 3 (dividends and share repurchases) consumes the majority of the available cash, according to ADP’s most recent annual report. That’s OK with me as a dividend stock investor.
Next, we’ll look at ADP’s financial situation. To conduct an evaluation, I’ll look at your credit score and debt. Then I’ll talk about dividend growth and dividend safety.
Credit Ratings by ADP
First and foremost, understanding a company’s credit rating is critical. Furthermore, a company’s credit score operates similarly to your personal credit score.
Credit Karma allows you to check yours for free: just click the link. I’ll check ADPs while you’re doing that.
Finally, better credit scores indicate a reduced risk to individuals who lend money to the business. Additionally, better credit scores indicate that lenders are more likely to be repaid for their loans.
ADP has an excellent credit rating. The company is rated AA- and Aa3 by S&P and Moody’s, respectively. This represents an investment grade, very low credit risk assessment as shown in table 2.
ADP’s credit ratings are among the finest available. Only two businesses in the United States receive the highest credit rating, AAA.
You may read my evaluations of them by clicking on the following links:
Table 2: ADP Scores High On The Credit Ratings Scale
As recently as 2014, ADP held the highest AAA credit rating. However, after spinning off the dealer services company known as CDK Global, the stock was downgraded.
CDK Global offers automobile retailers with software and technology solutions. It was incompatible with ADP’s commercial objectives. As a result, its stock trades and operations is run as a distinct entity.
Debt-to-Equity Ratio at ADP
It comes as no surprise to me that ADP’s financial situation is extremely solid, given its excellent credit rating. The capital structure of a business is how I assess its financial condition.
I particularly dislike seeing a business with a significant amount of debt on its financial sheet. If a company is having financial problems, debt repayment may be a danger to dividend safety.
At.6 to 1, ADP’s debt-to-equity ratio is quite acceptable. Furthermore, the company’s cash on hand is almost equivalent to its entire debt. ADP, in my view, has a strong balance sheet.
ADP Dividend Protection
The safety of ADP’s dividend is excellent. In my view, there is very little possibility that the ADP dividend will be cut in the near future.
My assessment of dividend safety is based on ADP’s:
- Business principles that are excellent
- Dividend payout percentages that are reasonable
- Dividend yield is on the low side.
- Strong cash flows on a regular basis
- Credit ratings that are excellent
- A solid financial position with a manageable debt burden
As a result, ADP’s dividend is very secure. Will it, however, expand? Let’s see…
Projection of ADP Dividend Growth
I create a dividend growth forecast for each of my assets to help me manage my dividend income. This forecast is based on
- Dividend increase in the past
- Ratios of dividend payment
- When management distributes a dividend, the policy is stated.
- The basics of business
- Business expansion strategy
- Prospects for Profit
Earnings and dividend growth were stifled by the global recession. At least for the time being.
However, I expect ADP dividend growth to be 7-9 percent each year in the long run. I’ll be delighted if ADP can continue to increase its dividend at a faster rate than in previous years. But I’m not holding my breath.
Here’s how I arrived at this dividend growth rate…
To begin with, the markets in which ADP works are expected to expand at a pace of 5% to 6%. As a result, I expect ADP to rise in tandem with the market.
In addition, they should grow their yearly income by the same amount. If prices stay the same, the revenue growth rate will translate into profit increase.
In addition, I see the business being more efficient. As a result, scale and cost reductions will boost profits by another 2% to 3%.
Finally, I’m going to assume that ADP’s dividend payout ratio stays the same. This will be in line with the company’s dividend policy statement.
As a result, sales will increase by 5-6 percent, resulting in a profit increase of 5-6 percent. Cost-cutting measures add another 2% to 3% to the total. A steady dividend payment ratio is also important. All of this points to an annual dividend growth rate of 7-9 percent for ADP.
After then, it’s your turn. Without evaluating the stock’s value, a proper stock analysis would be incomplete. So, let’s get started.
Stock Valuation by ADP
I’ll utilize a variety of valuation methods. In order to obtain a sense of how much ADP’s stock is worth.
Dividend Discount Model (ADP)
The single-stage dividend discount model considers all of the variables I’ve mentioned so far.
- Payment of the current yearly dividend
- Annual dividend increases forecasted
- My target yearly rate of return is 10%.
The continuous growth model estimates the fair value of ADP stock to be $201 per share based on these assumptions.
ADP Stock’s Morningstar Fair Value
The stock of ADP is valued at $154 per share by Morningstar, an investment research company.
Morningstar has been my go-to resource for investment analysis for over two decades. To supplement my own stock research, I find it useful and informative.
Morningstar is the source of this information.
Report on Simple Investing
The Simply Investing Report is published on a monthly basis. It offers in-depth dividend stock research and recommendations.
Make sure to read the rest of my Simply Investing review. You may read more about the publication’s approach to valuing dividend stocks there.
According to the most current Simply Investing analysis, ADP stock is overpriced.
Simply Investing is the source of this information.
The Price-to-Earnings Ratio of ADP
Unfortunately, ADP’s stock is also extremely costly in terms of price-to-earnings.
Despite significant profits growth in recent fiscal years, ADP stock seems to be overvalued. The trailing price-to-earnings ratio is still in the low-to-mid 30s.
It’s worth noting that ADP’s smaller rival, Paychex, has a similarly high price-to-earnings ratio.
Is Now A Good Time To Buy ADP?
To summarize our findings from the different ADP stock valuation methodologies…
ADP stock is overvalued according to the dividend discount model and Simply Investing.
ADP stock is also overpriced, according to both the price to earnings ratio and Morningstar. As a result, we have a constant perspective on stock value. It’s not cheap.
Here are some of my ideas…
I’ve been following ADP stock for a long time, and it always seems to be expensive. If I had waited for a better opportunity to invest, I would have gotten a better deal. It’s possible I’ve never done so before.
Taking into consideration all of these variables, as well as my previous experience with the stock. On any small price pullbacks, I believe it is a buy.
ADP stock is also an excellent option for dollar-cost averaging. To put it another way, make modest incremental purchases over time to grow the position in your portfolio.
And if you’re willing to put money into it. Ensure that you are trading stocks for free. The Webull app is what I use.
Webull is giving out free shares to new investors for a limited period. Here’s where you can find out more about Webull.
ADP Stock Analysis & Dividend Review: Wrap Up
I’ve had the great fortune of owning ADP for more than ten years. In my dividend stock portfolio, it has a mid-sized proportion.
From 2010 to 2012, I worked to advance my career. During that time, making modest incremental purchases.
First and foremost, the company’s business foundations are very strong.
In addition, the company’s dividend growth has been outstanding in the past.
In addition, future dividend growth should be solid.
Finally, any possible decrease in the dividend seems to be extremely unlikely.
ADP is a fantastic dividend growth company to purchase and keep for the long term, in my view.
I’d be happy to purchase more if there was a price drop. I may make another modest buy or two even if the stock price does not decrease.
As I said at the outset, high-quality dividend stocks are seldom inexpensive. And ADP is no exception.
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I Own ADP Stock & Collect The ADP Dividend
The ADP Dividend is a dividend payout that allows its shareholders to receive a dividend payment from the company. The payment is typically a fixed percentage of the company’s profits or a multiple of the company’s earnings per share. Generally, there are several variations of the dividend payout, depending on the company’s financial situation. The primary goal of the dividend payout is to help shareholders to receive a dividend payment at times when they are more likely to need the money.. Read more about workday stock and let us know what you think.
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