Is Paychex Inc (NASDAQ:PAYX) A Good Choice For Dividend Investors?

There is a lot to be liked about Paychex Inc (NASDAQ:PAYX) as an income stock, over the past 10 years it has returned an average of 4.00% per year. The company currently pays out a dividend yield of 3.08% to shareholders, making it a relatively attractive dividend stock. Does Paychex tick all the boxes of a great dividend stock? Below, I'll take you through my analysis. Check out our latest analysis for Paychex

5 questions to ask before buying a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Does it pay an annual yield higher than 75% of dividend payers?
• Does it consistently pay out dividends without missing a payment or significantly cutting payout?
• Has the amount of dividend per share grown over the past?
• Can it afford to pay the current rate of dividends from its earnings?
• Will it have the ability to keep paying its dividends going forward?

How does Paychex fare?

Paychex has a trailing twelve-month payout ratio of 81.83%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect PAYX's payout to fall to 70.79% of its earnings, which leads to a dividend yield of around 3.06%. However, EPS should increase to $2.64, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you're eyeing out is reliable in its payments. PAYX has increased its DPS from $1.2 to $2 in the past 10 years. It has also been paying out dividend consistently during this time, as you'd expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock. Relative to peers, Paychex has a yield of 3.08%, which is high for IT stocks but still below the market's top dividend payers.

Next Steps:

Keeping in mind the dividend characteristics above, Paychex is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I've compiled three important factors you should further examine:

• 1. Future Outlook: What are well-informed industry analysts predicting for PAYX’s future growth? Take a look at our free research report of analyst consensus for PAYX’s outlook.
• 2. Valuation: What is PAYX worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether PAYX is currently mispriced by the market.
• 3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.