Paychex Resumes Dividend Hikes As Business Picks Up


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Paychex ( PAYX ), a leading provider of payroll services to small and midsize businesses, has resumed dividend increases amid a rebound in sales and profit.

The company began raising the quarterly payout in 2011 after holding it steady at 31 cents a share for three years. The latest increase came in August, a hike of 2 cents, or 6%, to 35 cents a share.

The annual dividend is now $1.40 per share, which yields 3.6% at the current share price. That's well above the S&P 500 average of 2.56%. Meanwhile, the stock has risen 29% this year, also easily outpacing the S&P.

Paychex is benefiting from slowly rising U.S. employment and expansion into Germany, Europe's biggest economy, and South America. It's also expanding product offerings.

The Rochester, N.Y.-based company recently formed a partnership with Canada-based Kashoo, which develops accounting software for small businesses that can be downloaded from the Internet.

Paychex's profit and sales have been rising at a slow but steady pace for the past 13 quarters following a series of declines amid the 2008-09 recession.

On Sept. 30, Paychex posted a better-than-expected 5% gain in profit for the latest quarter. Sales rose 3% to $597.9 million, and the company reiterated its 2014 outlook.

The stock's three-year Earnings Stability Factor is 1 on a scale of 0 (most stable) to 99 (least stable).

Meanwhile, pretax margin rose for three straight years, to a robust 39.2% in 2012. Cash flow also has been on the rise, another sign that dividends could continue to rise.

Paychex is a member of the highly rated Computer Software-Enterprise industry group, which includes rivalAutomatic Data Processing ( ADP ). Risks to the stock include weaker economic growth and stiff competition from ADP and other payroll and human resource service providers.

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

This article appears in: Investing , Investing Ideas
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