Unpacking Automatic Data Processing Inc's Dividend Performance
Analysing ADP's Dividend Yield, Growth, and Sustainability
Automatic Data Processing Inc(NASDAQ:ADP) recently announced a dividend of $1.25 per share, payable on 2023-10-01, with the ex-dividend date set for 2023-09-07. As investors look forward to this upcoming payment, the spotlight also shines on the company's dividend history, yield, and growth rates. Using the data from GuruFocus, let's deep dive into Automatic Data Processing Inc's dividend performance and assess its sustainability.
What Does Automatic Data Processing Inc Do?
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ADP is a provider of payroll and human capital management solutions servicing the full scope of businesses from micro to global enterprises. ADP was established in 1949 and serves over 1 million clients primarily in the United States. ADP's employer services segment offers payroll, human capital management solutions, human resources outsourcing, insurance and retirement services. The smaller but faster-growing professional employer organization segment provides HR outsourcing solutions to small and midsize businesses through a co-employment model.
A Glimpse at Automatic Data Processing Inc's Dividend History
Automatic Data Processing Inc has maintained a consistent dividend payment record since 1975. Dividends are currently distributed on a quarterly basis. Automatic Data Processing Inc has increased its dividend each year since 1975. The stock is thus listed as a dividend aristocrat, an honor that is given to companies that have increased their dividend each year for at least the past 48 years.
Breaking Down Automatic Data Processing Inc's Dividend Yield and Growth
As of today, Automatic Data Processing Inc currently has a 12-month trailing dividend yield of 1.88% and a 12-month forward dividend yield of 1.97%. This suggests an expectation of increased dividend payments over the next 12 months.
Over the past three years, Automatic Data Processing Inc's annual dividend growth rate was 10.80%. Extended to a five-year horizon, this rate increased to 12.40% per year. And over the past decade, Automatic Data Processing Inc's annual dividends per share growth rate stands at an impressive 11.10%.
Based on Automatic Data Processing Inc's dividend yield and five-year growth rate, the 5-year yield on cost of Automatic Data Processing Inc stock as of today is approximately 3.37%.
The Sustainability Question: Payout Ratio and Profitability
To assess the sustainability of the dividend, one needs to evaluate the company's payout ratio. The dividend payout ratio provides insights into the portion of earnings the company distributes as dividends. A lower ratio suggests that the company retains a significant part of its earnings, thereby ensuring the availability of funds for future growth and unexpected downturns. As of 2023-06-30, Automatic Data Processing Inc's dividend payout ratio is 0.58.
Automatic Data Processing Inc's profitability rank, offers an understanding of the company's earnings prowess relative to its peers. GuruFocus ranks Automatic Data Processing Inc's profitability 9 out of 10 as of 2023-06-30, suggesting good profitability prospects. The company has reported positive net income for each of year over the past decade, further solidifying its high profitability.
Growth Metrics: The Future Outlook
To ensure the sustainability of dividends, a company must have robust growth metrics. Automatic Data Processing Inc's growth rank of 9 out of 10 suggests that the company's growth trajectory is good relative to its competitors.
Revenue is the lifeblood of any company, and Automatic Data Processing Inc's revenue per share, combined with the 3-year revenue growth rate, indicates a strong revenue model. Automatic Data Processing Inc's revenue has increased by approximately 8.40% per year on average, a rate that outperforms than approximately 62.41% of global competitors.
The company's 3-year EPS growth rate showcases its capability to grow its earnings, a critical component for sustaining dividends in the long run. During the past three years, Automatic Data Processing Inc's earnings increased by approximately 12.90% per year on average, a rate that outperforms than approximately 52.39% of global competitors.
Lastly, the company's 5-year EBITDA growth rate of 12.80%, which outperforms than approximately 60.65% of global competitors.
Conclusion
Given Automatic Data Processing Inc's consistent dividend payments, impressive dividend growth rate, sustainable payout ratio, high profitability, and solid growth metrics, the company presents a promising investment for those seeking stable dividend returns. As always, investors are encouraged to conduct their own comprehensive analysis before making investment decisions.
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This article first appeared on GuruFocus.