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ADP Pleases Investors With 10% Dividend Hike, Tax Cut A Boon


Automatic Data Processing, Inc. ADP yesterday announced a 9.5% hike in its quarterly cash dividend.

The company’s board of directors raised its quarterly dividend payment from prior dividend of 63 cents per share to 69 cents. This translates to an annualized dividend of $2.76 per share, with a yield of 2.4%. The increased dividend will be paid on Jul 1, 2018 to shareholders of record as of Jun 8, 2018.

The latest dividend hike came on the back of the tax benefits from the new tax (Tax Cuts and Jobs Act, effective from December 2017), which lowered corporate tax rates significantly from 35% to 21%. Notably, the company reported a one-time net tax benefit of about $46 million from the Tax Cuts and Jobs Act in second-quarter fiscal 2018.

A Long Track Record of Dividend Hike

ADP’s board of directors is optimistic about offering another dividend hike in November 2018. Notably, the company has been maintaining a consistent record of annual dividend hikes. The company offered its 43rd consecutive increase in dividend on Nov 7, 2017. With a 10.5% increase, the quarterly dividend then was raised to 63 cents from 57 cents.

We believe that the company’s strong financial background have enabled it to undertake shareholder-friendly measures like dividends and buybacks. In fiscal 2017, ADP generated $2,125.9 million cash from operating activities, reflecting an increase of 12% year over year. The company paid dividend of $995 million and repurchased stocks worth $1.26 billion during fiscal 2017.

ADP’s Growth Potential Raises Optimism

We believe that such initiatives not only enhance shareholders’ return but also raise the market value of a stock. Through dividend payouts and share repurchases, companies boost investors’ confidence, persuading them to either buy or hold the script.

Notably, ADP is confident on its growth potential, which increases the possibility of an additional increase in shareholder value. It looks strong on the back of strategic acquisitions and business moves. The company is focused on streamlining its business to strengthen core operations in the long run. To this end, it has divested a number of its divisions in the past few years. Further, we note that ADP holds a dominant position in the payroll processing and HCM market, primarily due to its robust product portfolio.

Zacks Rank & Price Performance

Automatic Data Processing is a Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.

A glimpse of the company’s price trend reveals that the stock has had an impressive run on the bourse on a year-over-year basis. Shares of ADP have returned 14.2%, which compared favorably with the S&P 500’s gain of 13.8%.

Other Stocks to Consider

A few other top-ranked stocks in the broader Business Services sector are Conduent CNDT, TriNet Group TNET and The Brink’s Company BCO. While Conduent and TriNet Group sport a Zacks Rank #1 (Strong Buy), The Brink’s Company has a Zacks Rank #2.

Earnings for Conduent, TriNet Group and The Brink’s Company are estimated to rise 43.8%, 40% and 5.3%, respectively, for the current quarter.

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