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Top Dividend Stock Paychex Rewards Patient Investors

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I nvestors concerned with limiting risk while building wealth over time should take a look at big-cap stockPaychex ( PAYX ). The provider of payroll and human resources services is benefiting from steady job growth and an increase in clients seeking help in navigating ObamaCare reforms.

The stock is up 17% this year, easily outperforming the S&P 500, which is up only slightly. Paychex is at a new high and in a buying range above a 51.82 buy point of a long base.

In addition, Paychex boasts a respectable long-term dividend growth rate of 6%. The current annual payout of $1.68 a share works out to an annualized yield of about 3%, above the S&P 500 average of around 2%.

Paychex has a Composite Rating of 94, based on five IBD metrics. That rating puts it among the leaders in the Commercial Services-Outsourcing industry group, which has risen 22 places in the past six weeks to No. 41 out of 197 as of Wednesday's IBD.

Cintas ( CTAS ), a supplier of company uniforms, is probably Paychex's closest competitor in the group. It boasts a Composite Rating of 90, a whopping 64% long-term dividend growth rate and solid stock-price gains this year.

But the key word for Paychex is stability. It leads the group with a five-year Earnings Stability Factor of 1 on a scale of zero to 99, with zero being most stable. Profit in the fiscal year that ends in May is expected to rise 10% to $2.04 a share, followed the next year by an 8% increase, equal to the company's three-year earnings growth rate.

Furthermore, its annual pretax margin of nearly 39% and return on equity of about 38% dwarfs Cintas' and suggests that Paychex has the firepower to keep raising its dividend.

Paychex most recently raised its quarterly payout on July 9, a hike of 4 cents or 11%, to 42 cents a share. Also, while many companies slashed their dividends during the 2008-09 recession, Paychex held its steady -- and Cintas actually raised its own.

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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