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Are You Looking for a High-Growth Dividend Stock? Automatic Data Processing (ADP) Could Be a Great Choice

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Automatic Data Processing in Focus

Automatic Data Processing (ADP) is headquartered in Roseland, and is in the Business Services sector. The stock has seen a price change of 17.13% since the start of the year. Currently paying a dividend of $0.69 per share, the company has a dividend yield of 2.01%. In comparison, the Outsourcing industry's yield is 1%, while the S&P 500's yield is 1.96%.

In terms of dividend growth, the company's current annualized dividend of $2.76 is up 9.5% from last year. In the past five-year period, Automatic Data Processing has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.98%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. ADP's current payout ratio is 64%, meaning it paid out 64% of its trailing 12-month EPS as dividend.

ADP is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $5.18 per share, representing a year-over-year earnings growth rate of 19.08%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, ADP presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).

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


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

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