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.