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Steady Growth And Dividend Mark Paychex
By: Investor's Business Daily
A company likePaychex ( PAYX ) is a defensive stock that offers a dividend, but it's also somewhat cyclical.
When hard times hit, payrolls are smaller, and that means a slowdown for companies like Paychex, which is an outsourcer for payroll, human resources and employee benefits for small and mid-sized companies.
But good times are slowly returning to the Rochester, N.Y.-based company, which has more than 500,000 employer clients.
Its earnings rose to $1.60 a share in the fiscal year ended in May, the highest ever, and are expected to grow moderately over the next two fiscal years. Earnings dropped in fiscal 2009 and 2010 as the financial crisis hit hard at the economy.
The company was a huge growth stock in the 1990s, but has been moving in a wide trading range since hitting a top in late 2000. After the decline of earnings earlier in this decade, growth in both earnings and the stock have not recovered to the prior pace.
The dividend rose with earnings and stock price. From 5 cents a share in 1990, the quarterly dividend rose to 31 cents by the middle of 2008. The company got through the tough times without lowering its dividend, but only started raising it again in October 2011. The past two quarters, it's paid out 35 cents a share, good for a yield of about 3%.
The company has a five-year Earnings Stability Factor of 6 on a 0 to 99 scale, where low numbers correspond to steady growth.
Analysts expect earnings to grow to $1.69, a 6% increase, in the current fiscal year and to $1.81 by fiscal 2015, a 7% increase.
The company has a return on equity of 35%, well above the 17% investors should seek. That's particularly impressive when paired with the fact that the company has no debt.
Its pretax profit margin is 39%. That's been fairly steady for several years and only dipped by a few percentage points during the recession.