ADP, Paychex Provide Payroll Services, Dividends

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If your employer outsources payroll processing services, there's a good chance eitherAutomatic Data Processing ( ADP ) orPaychex ( PAYX ) handles them.

Roseland, N.J.-based Automatic Data Processing is the world's biggest provider of payroll, human resource, benefits and other outsourced business services. It serves some 620,000 customers in more than 126 countries. ADP says over 80% of Fortune 500 companies use at least one of its services.

ADP, which has paid a dividend to shareholders every year since 1974, makes the S&P 500 Dividend Aristocrats index. Companies in the index have boosted dividends each of the past 25 consecutive years.Johnson & Johnson ( JNJ ), featured in Tuesday's Income Investor column, is also a member.

ADP currently pays a quarterly dividend of 48 cents a share, or $1.92 a year. Its annualized yield of about 2.5% is tracking higher than the S&P 500's 2.03%.

Annual earnings have grown each year since 2010. The consensus forecast calls for a 10% increase for the current fiscal year, which ends in June, as well as the next. The company's profit dipped a penny in 2010 as it got hurt by the 2008-09 recession.

Recent steady profit growth helps it earn a 1 for its three-year Earnings Stability Factor on a scale of 0 to 99, in which 0 represents the most stable. Analysts expect a 7% increase in fiscal Q2 earnings when ADP reports results on Feb. 5 before the open.

Smaller rival Paychex provides payroll, human resource and employee benefits outsourcing services to about 570,000 small and midsize companies. It pays out $1.40 a year, for a 3.3% annualized yield.

Paychex, which has lifted profits the past three years, also gets a 1 for its three-year Earnings Stability Factor.

Both companies' fortunes are largely tied to the U.S. economy. The U.S. accounts for about 80% of ADP's business.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: ADP , JNJ , PAYX

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