Automatic Data Processing (NASDAQ:ADP) Will Pay A Larger Dividend Than Last Year At $1.70

Automatic Data Processing, Inc. (NASDAQ:ADP) will increase its dividend on the 1st of January to $1.70, which is 10% higher than last year's payment from the same period of $1.54. This will take the annual payment to 2.4% of the stock price, which is above what most companies in the industry pay.

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Automatic Data Processing's Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Automatic Data Processing was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

The next year is set to see EPS grow by 28.1%. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Automatic Data Processing

Automatic Data Processing Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was $1.96, compared to the most recent full-year payment of $6.16. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

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. Automatic Data Processing has impressed us by growing EPS at 12% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

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. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Automatic Data Processing that you should be aware of before investing. 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.