Dividend Aristocrats In Focus: Computerized Knowledge Processing

Up to date on March fifth, 2025 by Felix Martinez

Computerized Knowledge Processing (ADP) may not be a family identify, however it needs to be for dividend progress buyers. ADP has raised its dividend annually for 50 years in a row.

ADP is a member of the Dividend Aristocrats, a gaggle of 69 shares within the S&P 500 Index with 25+ years of consecutive dividend will increase. ADP has one of many longest streaks of dividend will increase among the many Dividend Aristocrats.

We have now created a full record of all 69 Dividend Aristocrats, together with essential metrics like P/E ratios and dividend yields, which you’ll be able to obtain by clicking on the hyperlink beneath:

Disclaimer: Certain Dividend just isn’t affiliated with S&P World in any means. S&P World owns and maintains The Dividend Aristocrats Index. The knowledge on this article and downloadable spreadsheet relies on Certain Dividend’s personal evaluate, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s primarily based. Not one of the info on this article or spreadsheet is official information from S&P World. Seek the advice of S&P World for official info.

ADP’s lengthy historical past of dividend progress is the results of a robust enterprise mannequin and sturdy aggressive benefits. This has led to domination of its core markets for many years. To cite legendary investor Warren Buffett, ADP has a large financial moat.

This text will evaluate ADP’s fundamentals and talk about whether or not the inventory is presently buying and selling at a lovely sufficient valuation.

Enterprise Overview

ADP is a enterprise outsourcing providers firm. It was based in 1949 and started with a single consumer. Within the 75 years since ADP has grown into the main payroll and human useful resource outsourcing firm. It has over 1 million purchasers in additional than 140 nations worldwide.

ADP offers providers to firms of all sizes, together with payroll, advantages administration, and human sources administration. These providers are extremely demanded, as firms want to outsource these features to raised concentrate on their core enterprise actions.

ADP has a number one place throughout its strategic pillars and a extremely diversified consumer record.

The corporate has undergone important restructuring in recent times. In 2014, ADP spun off its human capital administration enterprise, which now trades as CDK World (CDK).

ADP posted fiscal second-quarter earnings on January twenty ninth, 2025. ADP reported an 8% income enhance to $5.0 billion in Q2 FY25, with web earnings up 10% to $963 million. Adjusted EBIT rose 11% to $1.3 billion, increasing the margin to 25.2%. Diluted EPS grew 10% to $2.35. The corporate reaffirmed its full-year outlook, anticipating 6%-7% income progress and seven%-9% adjusted EPS progress.

Employer Companies income grew 8%, with a 90-basis-point margin enhance, whereas PEO Companies income rose 8% however noticed a 140-basis-point margin decline. Curiosity on consumer funds jumped 21% to $273 million, supported by greater balances and yields. Robust new enterprise bookings and curiosity in consumer funds drove total progress.

For FY25, ADP expects Employer Companies income progress of 6% – 7% and margin enlargement. PEO Companies income is projected to rise 5% – 6% regardless of margin strain. Consumer funds curiosity income is forecasted at $1.14-$1.16 billion. ADP stays centered on sustainable progress and shareholder worth.

Supply: Investor Presentation

Development Prospects

Computerized Knowledge Processing has compounded its adjusted earnings-per-share at a price of greater than 11% per 12 months during the last decade, which we consider it may come near matching shifting ahead.

Past 2023, we consider the corporate can ship 9% annualized progress in earnings-per-share over full financial cycles. A lot of this progress is more likely to be pushed by the corporate’s Skilled Employer Group (PEO) Companies phase, which continues to ship sturdy progress.

Importantly, this income progress has been accompanied by significant margin enlargement, which signifies that the phase’s progress has outsized the agency’s backside line.

As well as, share buybacks are a low single-digit tailwind to annual EPS progress, and we count on that to proceed.

Supply: Investor Presentation

Two key long-term progress catalysts for ADP are continued payroll will increase and increasing laws.

The variety of staff on ADP purchasers’ payrolls continues to develop, and we consider it will proceed for the foreseeable future. Subsequent, the more and more advanced regulatory setting creates important compliance prices for companies; this additionally helps present ADP with long-term progress.

Aggressive Benefits & Recession Efficiency

Many aggressive benefits gas ADP’s progress. ADP has a deep reference to its clients and enjoys a robust status for customer support, which helps preserve buyer retention very excessive.

ADP enjoys an amazing scale that its rivals can not match. As a worldwide firm, ADP is uniquely positioned to assist firms with staff on a number of continents.

As well as, ADP advantages from a recession-resistant enterprise mannequin. ADP’s earnings-per-share throughout the Nice Recession are proven beneath:

2007 earnings-per-share of $1.83
2008 earnings-per-share of $2.20 (20% enhance)
2009 earnings-per-share of $2.39 (8.6% enhance)
2010 earnings-per-share of $2.39 (flat)

ADP elevated earnings-per-share in 2008 and 2009, which is a uncommon accomplishment. ADP’s continued progress throughout the Nice Recession is as a result of companies nonetheless want payroll and human useful resource providers, even throughout an financial downturn.

The corporate continued to carry out comparatively nicely within the 2020 financial downturn brought on by the coronavirus pandemic. ADP remained extremely worthwhile throughout the pandemic, which allowed it to keep up its streak of annual dividend will increase.

The required nature of ADP’s providers helps insulate the corporate from the results of a recession. Given ADP’s measurement and scale, we consider it’s going to carry out nicely throughout the subsequent recession.

Valuation & Anticipated Returns

We forecast adjusted earnings-per-share of roughly $9.95 for fiscal 2025. Based mostly on the present share worth of ~$310, the inventory has a price-to-earnings ratio of 31.2.

We see honest worth for ADP at 29 occasions earnings, which means the inventory seems to be overvalued. This means a slight headwind to whole returns within the coming years from valuation enlargement.

If the P/E a number of expands from 31.2 to 29 over the following 5 years, it could lower annual returns by 1.5% per 12 months.

We count on ADP to develop earnings-per-share by 9% yearly over the following 5 years. As well as, the inventory has a present dividend yield of 1.9%.

The mix of earnings progress, dividends, and valuation enlargement ends in a complete anticipated return of 9.4% per 12 months over the following 5 years.

Given its sturdy fundamentals, ADP will nearly definitely proceed rising its dividend for a few years to come back. ADP maintains a goal payout ratio of 55%- 60% of annual earnings, so the payout could be very secure with room to develop.

Ultimate Ideas

ADP is a robust enterprise. It maintains a big record of consumers and holds a prime place within the business. This offers it a large financial “moat,” a time period popularized by investing legend Warren Buffett.

Certainly, ADP’s vast moat retains rivals at bay, resulting in excessive profitability ranges.

There needs to be loads of progress going ahead, each when it comes to earnings and dividends. Laws proceed to change into extra advanced.

And, because the economic system expands, firms are including staff and more and more use ADP’s providers. If a recession happens, ADP ought to proceed to extend its dividend, as clients will nonetheless want its providers.

With an anticipated price of return above 9.4%, we price ADP inventory a maintain.

In case you are enthusiastic about discovering high-quality dividend progress shares appropriate for long-term funding, the next Certain Dividend databases can be helpful:

The key home inventory market indices are one other stable useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month: