What's Happening
Automatic Data Processing ( ADP ) will likely announce its next dividend increase this week. The company has a long history of annual dividend increases which spans the last 42 years. The stock has enjoyed steady gains over the last year, and shares are currently up 8.9% year to date.
Technical Analysis
ADP was recently trading at $112.67, down $9.10 from its 12-month high and $25.09 above its 12-month low. Technical indicators for ADP are bullish and the stock is in a strong upward trend. The stock has recent support above $112.10 and has recent resistance below $118.50. Of the 18 analysts who cover the stock, three rate it a "strong buy", 14 rate it a "hold", and one rates it a "strong sell". ADP gets a score of 49 from InvestorsObserver's Stock Score Report.
Analyst's Thoughts
ADP has a very impressive track record of dividend increases, and with a payout ratio of 59.5% the company can easily afford to extend its 42-year streak of increases this year. With the overall economy looking good, and unemployment low, business has been good for ADP. Analysts expect earnings growth of 3.2% this year, and an additional 11.8% in 2018. The stock currently has a yield of 2.0%. Last year it boosted its dividend by 7.5%, and in the previous year by 8.1%. I expect a similar increase this year. Look for the quarterly distribution to rise from $0.57 to around $0.62, for an increase of 8.7%. Look for the announcement this week, with the stock trading ex-dividend during the second week of December.
Stock Only Trade
If you're looking to establish a long stock position in ADP, consider buying the stock under $112.50. Sell if it falls below $101.00 or take profits if it gets to $129.00.Bullish Trade
If you want to set up a bullish hedged trade on ADP, consider a February 95/100 bull-put credit spread for a 35-cent credit. That's a potential 7.5% return (26.2% annualized*) and the stock would have to fall 10.9% to cause a problem.
Bearish Trade
If you want to take a bearish stance on the stock at this time, consider a February 125/130 bear-call credit spread for a 40-cent credit. That's a potential 8.7% return (30.2% annualized*) and the stock would have to rise 11.3% to cause a problem.
Covered Call Trade
If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a January $115 covered call. Buy ADP shares (typically 100 shares, scale as appropriate), while selling the January $115.00 call for a debit of $110.50 per share. The trade has a target assigned return of 4.1%, and a target annualized return of 20.0% (for comparison purposes only).The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Originally published on InvestorsObserver.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.