In this low interest rate environment, investors have turned to
high-yielding blue-chips as a source of retirement income. This
five-part series will outline what I believe to be the top
fivedividend aristocrat stocks, most suitable for a retiree's
In my previous articles on
, I told you about
Emerson Electric (NYSE:
electrical-power solutions for consumers and industry.
Today, I want to draw your attention to a company that serves as
an essential "behind-the-scenes administrator" -- cutting checks,
managingaccounting services and overseeingdirect deposit transfers
-- for employees at corporations across the United States, as well
This New Jersey-based firm began in 1949 as a manual payroll
processor. Focused on increasing efficiency for its customers, its
business evolved from punch cards to automated paycheck printing.
Today, this company issues paychecks to about one out of every six
Americans. I'm talking about
Automatic Data Processing (Nasdaq:
Dividends keep growing
This business success translates into steady and regular dividend
increases. ADP currently distributes $0.395 per quarter or $1.58
annually. At the stock's current price -- near $54 --
this works out to a forward
of almost 3%. And more important: The company has consistently
increased its dividend every year since 1974. In 2009, for example,
the company paid out $1.33 in dividends. In 2010, it paid 3.7% more
-- $1.38 per share; and in 2011, dividend payments reached $1.48
per share. By 2012, dividends should be at least $1.58, another
jump of 7.1% from 2011.
growth backs the company's regular dividend increases. Despite
weakness in the U.S.
-- which means fewer corporations needing to issue paychecks to
their employees -- ADP has maintained its strong customer base.
Client retention is at a historical high, according to ADP
Carlos Rodriguez. In addition, revenue and profits are expected to
expand during the coming year.
That's because ADP is focusing on diversifying its service
offerings. Besides providing payroll administration services, the
company now also helps corporations with many facets of human
resources, including hiring, managing compensation and benefits
packages and overseeing retirement planning. ADP also provides a
multitude of business solutions for vehicle dealers.
Expanding its traditional markets is an important aspect of the
company's growth strategy. Traditionally, ADP focused on serving
large corporations. It's now taking on rival
in attempt to dominate human resources and payroll services in
small- and medium-sized businesses, too. The strategy appears to be
From a technical perspective, ADP looks strong.
As the below chart shows,
have been climbing for the past two years. In the process, a
Currently, the stock is at about its so-called "
," trading at roughly $54 a share. As long as this support level is
maintained, the stock is likely to continue moving higher over
time. Also, because the shares are at a multi-month low, now may be
a potentially attractive time to purchase the stock.
Resistance -- the opposite of support and the price at which a
stock is unlikely to exceed -- which is about $56.70, the two-year
high reached in early 2012. Shares could easily retest this high,
marking at least a 5% gain. But if resistance were broken, then the
stock should could potentially move higher.
technical outlook is backed by strong fundamentals.
No end in sight for rising revenue
ADP's revenue has increased every year since 2003. In early May,
the company reported upbeat fiscal third-quarter results. Due to
new business sales across several payroll service areas, revenue
for the period increased 7% year-over-year, reaching $2.9 billion.
With U.S. unemployment rates expected to decrease in the coming
months, the number of employees on ADP's payroll processing plans
is also likely to grow. As such, management anticipates full-year
2012 revenue to rise 7-9% to at least $10.6 billion -- up
from $9.9 billion in 2011. For full-year 2013, analysts expect
revenue to increase a further 8% to $11.5 billion.
The earnings outlook is equally strong.
In the most recently reported third-quarter, earnings rose 8% to
$0.92, from $0.85 in the year-earlier period.
With an expected increase in demand for ADP's business services,
the company projects full-year 2012 earnings will rise 8-9% to the
range of $2.72-$2.75 per share. (In 2011, it stood at $2.52 per
share.) By full-year 2013, analysts project earnings could increase
at least another 10%, to $3.01 per share. This earnings increase
should translate into regular dividend increases over time.
In addition to a strong fundamental outlook, the company currently
has $1.7 billion in cash. With more than $6 billion in equity and
only $17.3 million in debt, it has an
outstandingdebt-to-market-capitalization ratio of less than 1%,
Action to Take -->
Even during a soft economic environment, ADP has managed to grow
its revenues and earnings -- and reward shareholders through
regular dividend increases. By expanding its service offerings and
product portfolio, the company has maintained its stronghold in the
payroll services industry. The stock is suitable for retired
investors who want regular and increasing dividends for some time
-- Dr. Melvin Pasternak
Melvin Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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