Friday, October 9, 2009

bought ADP

This week I started a position in Automatic Data Processing (ADP) within my wife's RRSP. I've had my eye on ADP shares for a few years and I decided to take the plunge now, even though the shares are not at bargain basement levels.

I wrote about ADP last year here.

My reasoning for buying into this company for the long term:
  • ADP is the dominant industry player and the class of their field
  • They have a great earnings and dividend growth history
  • They earn a high ROE and have low debt
  • The company is experiencing a flat earnings period due to a sharp drop off in jobs and economic activity, but I believe they will accelerate out of this well
  • I like their potential to grow outside of the US, Canada, and Europe in the coming years
  • Feels like a good time to buy this company when unemployment is high, even though the stock has had a bit of a run from it's March lows

ADP is due to to raise their dividend, however their current pay out ratio sits at 50% of earnings.

1 comment:

Steve C said...

Bill Nygren of Oakmark just bought ADP in Q3. Here's what he had to say:


Automatic Data Processing (ADP — $39)
ADP is the global leader in payroll processing and related employer services. ADP is generally viewed as one of the safest and most consistent growth companies. We concur with that view, and we believe that its cash-rich balance sheet and lack of debt add to its high quality. Because of that, investors have usually rewarded ADP with a premium valuation. Its price-to-earnings ratio has averaged in the mid-20s over the past 20 years, and it hit nearly 30 times earnings in 2007 when the stock reached $52. Like many extremely high-quality companies, ADP stock largely missed the post-March 9th rally, increasing by 22% while the S&P 500 increased by 58%. With the stock selling at only 16 times trailing earnings and yielding 3.4% (which is more than a 10 year government bond) we believe that this attractive company is now also an attractive stock.