Automatic Data Processing (NASDAQ:ADP) Is Paying Out A Larger Dividend Than Last Year

Automatic Data Processing, Inc.'s (NASDAQ:ADP) dividend will be increasing from last year's payment of the same period to $1.70 on 1st of January. This makes the dividend yield 2.6%, which is above the industry average.

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Automatic Data Processing's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Automatic Data Processing's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 28.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 54% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Automatic Data Processing

Automatic Data Processing Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was $1.96, compared to the most recent full-year payment of $6.80. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Automatic Data Processing has grown earnings per share at 12% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

We Really Like Automatic Data Processing's Dividend

Overall, a dividend increase is always good, and we think that Automatic Data Processing is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Automatic Data Processing that investors need to be conscious of moving forward. Is Automatic Data Processing not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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