Job growth isn't just good news for the economy. Payroll
services providers such asPaychex (
) stand to gain as companies expand and hire more workers.
Friday's news that employers added a higher-than-expected
175,000 jobs in February could mean more business for the
Rochester, N.Y.-based company, which also handles human resources
and employee benefits for some 570,000 small and midsize U.S.
The U.S. job market directly affects Paychex, so low job
growth and high unemployment can result in tough times. Its
annual earnings-per-share growth streak skidded to a halt in
fiscal 2009 and 2010, as the economy fell into recession amid the
But it's been back on the growth track since, with analysts
expecting a 6% gain for the fiscal year ending in May and 8% next
Paychex's three-year EPS growth rate is 6%, as is its sales
growth rate for the same period. Its three-year Earnings
Stability Factor of 1, on a scale of 0 (most stable) to 99 (most
volatile), reflects that slow but steady growth.
The company carries no long-term debt, and return on equity --
which measures how well management uses its capital -- was 34.6%
in 2013. That's well above the 17% minimum threshold investors
Its quarterly dividend payout has trended higher over the past
two decades, from 3 cents a share in 1989 up to 31 cents by
mid-2008. But when the U.S. fell into recession in 2008 and '09,
Paychex halted increases until October 2011, though it continued
paying a dividend.
It now pays out a quarterly 35 cents a share, or $1.40 a year,
for an annualized yield of 3.3%. That compares with the S&P
500's average yield of 1.87%.
The stock rose 46% last year, outperforming the S&P 500's
30% gain, before pausing to start working on a potential base.
It's trying to climb back above its 10-week moving average and is
8% off its Jan. 7 intraday high.