Automatic Data Processing: Quality Comes at a Price

To become a Dividend King, a company must raise its dividend for at least 50 consecutive years. Attaining this singular criteria for entry into this index sounds easy in theory, but just 48 companies currently hold the title of Dividend King.

Automatic Data Processing Inc. (NASDAQ:ADP) has not yet qualified for membership in this exclusive group, but the company did raise its dividend by 20.2% for the Jan. 1, 2023 payment date.

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ADP 15-Year Financial Data


The intrinsic value of ADP


Peter Lynch Chart of ADP



Assuming the dividend stays constant for all of 2023, Automatic Data Processing will have amassed a dividend growth streak of 48 consecutive years, putting it that much closer to being enshrined in the Dividend Kings.


But Automatic Data Processing is much more than just a dividend growth story. The companys business model, size and scale have positioned it to be able to successfully grow its dividend, along with its results, for a long period of time.

Lets dig deeper to see why I believe investors should see the dividend increase as a positive sign for the company and its stock.

Takeaways from recent earnings results

Automatic Data Processing reported fiscal first-quarter 2023 results on Oct. 26. Revenue grew 10% to $4.22 billion, which was $53 million more than the market had expected. Adjusted earnings per share of $1.86 were higher by 21 cents, or 12.7%, from the prior year and 7 cents more than anticipated.

Looking closer at the two segments of the company, revenue for Employer Services, which provides payroll and other administrative services, grew 9% in constant currency to $2.79 billion. This segment was powered by average client funds balances growth of 9%, with interest revenue seeing a tailwind from the rising interest rate environment.


Employer Services also saw its U.S. pays under control grow 6% year over year. The segment benefited from the addition of new clients as well as an increase in the number of transactions with existing customers. Revenue retention reached a new record for the quarter, while the segment margin expanded 50 basis points to 30.9%.

more info:https://finance.yahoo.com/news/automatic-data-processing-quality-comes-205955445.

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