Thursday, November 12, 2009

ADP dividend up 3%

Automatic Data Processing (ADP) reported better than expected fiscal first quarter earnings and hiked their dividend 3% to $0.34/share per quarter. This is the 35th year in a row that ADP has raised their dividend. Mounting unemployment in the U.S. continues to have an impact on ADP's revenues, as fewer workers for their clients means less fees to ADP.

ADP has forecasted EPS for fiscal 2010 to come in at about $2.37 per share. The stock is currently trading at 18.3x that forward earnings number and yielding 3%. The current dividend pay out indicates a pay out ratio of 57% on estimated 2010 earnings.

The stock is up 8% since I started a position in ADP inside my wife's RRSP. An interesting thing to note is that this stock seems to have really taken off despite the fact that US unemployment is at best flattening out. Could this be an indicator of the next 6 months to one year? Time will tell. If the job market turns up slower than expected, or stays at depressed levels, ADP could suffer.


* My wife owns shares of ADP in her RRSP.

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