Updated 3/6/25

Automatic Data Processing, Inc. (ADP) is one of the most well-established names in payroll and human capital management. With a history dating back to 1949, ADP has grown into a global leader in HR outsourcing and business solutions. Companies of all sizes rely on its cloud-based platforms for payroll processing, benefits administration, and workforce management.

For dividend investors, ADP stands out as a rock-solid choice. It has built a strong track record of paying and growing dividends, supported by a steady business model that generates reliable cash flow. While the stock isn’t cheap, its consistent returns, stable financials, and shareholder-friendly policies make it a long-term winner for income investors.

Let’s take a deeper look at ADP from a dividend perspective.

Key Dividend Metrics

💰 Forward Dividend Yield: 1.98%
📈 5-Year Average Dividend Yield: 2.01%
🏆 Consecutive Years of Dividend Growth: 49
📊 5-Year Dividend CAGR: ~12%
🔄 Payout Ratio: 59.85%
📆 Next Dividend Payment Date: April 1, 2025
⏳ Ex-Dividend Date: March 14, 2025

Dividend Overview

ADP has been rewarding shareholders with dividends for decades, and that trend isn’t slowing down anytime soon. With a forward yield of 1.98%, it may not offer the highest payout in the market, but it more than makes up for it with consistency and growth.

A near 50-year streak of dividend increases places ADP among the most reliable dividend payers on the market. The current annual payout sits at $6.16 per share, well covered by earnings, with a payout ratio below 60%. This balance allows the company to reinvest in its business while continuing to raise dividends over time.

For investors who prioritize dividend stability over high yield, ADP’s track record speaks for itself.

Dividend Growth and Safety

ADP isn’t just about paying dividends—it’s about growing them. Over the past five years, the company has increased its dividend at an average annual rate of 12%. That’s a strong growth rate, especially for an established, large-cap company.

What makes ADP’s dividend so safe?

• Strong cash flow: ADP generated $4.77 billion in operating cash flow over the past year, giving it plenty of room to keep raising dividends.
• Moderate payout ratio: With less than 60% of earnings paid out as dividends, there’s still flexibility for further increases.
• Low debt burden: The company maintains a manageable debt load, ensuring dividends remain sustainable even in economic downturns.

These factors make ADP a strong candidate for continued dividend growth, which is key for long-term income investors looking for reliable and increasing payouts.

Chart Analysis

Looking at ADP’s stock chart, the trend over the past year has been overwhelmingly bullish. The stock has been riding an uptrend, with both the 50-day moving average (orange line) and the 200-day moving average (blue line) showing clear signs of continued strength. The 50-day moving average is well above the 200-day moving average, confirming that the longer-term trend remains intact.

However, the most recent price action suggests a bit of hesitation near the $310 level. The stock has been moving higher but with some volatility, and there have been multiple pullbacks along the way. This could indicate some profit-taking or resistance forming at current levels.

Volume and Momentum

Volume looks fairly stable, but there are noticeable spikes on both buying and selling days. This suggests there is still strong participation in the stock, but also moments of heavier distribution. The most recent volume readings are slightly elevated, which may indicate increased investor activity around these price levels.

The Relative Strength Index (RSI) is at 38.98, which is approaching oversold territory. Typically, a reading below 30 would indicate the stock is oversold, but this level suggests that selling pressure has increased recently. If the RSI starts to rebound from here, it could signal that buyers are stepping back in.

Recent Price Action

The last five candles tell an interesting story. While the stock reached a high of $322.84 earlier in the year, it has since pulled back but remains above key support levels. The most recent candles show long upper wicks, which often indicate selling pressure at higher levels. This suggests that while buyers are still pushing the stock up, there is some hesitation when it reaches new highs.

For now, the price remains well above the 50-day moving average, meaning the short-term trend is still intact. However, if the stock continues to decline toward that moving average, it could test support around the $300 range. A break below that level might lead to further downside, while a bounce could set up another leg higher.

Overall, ADP’s chart reflects a strong long-term trend, but there are short-term signs of potential consolidation or cooling off after a significant run-up.

Analyst Ratings

📊 Automatic Data Processing, Inc. (ADP) has recently received a range of analyst evaluations, reflecting both positive and cautious outlooks. The consensus among analysts leans toward a “Hold” rating, with an average 12-month price target of $293.55. This suggests a slight downside compared to the current price of $315.18.

🔼 Upgrades

📈 On February 3, 2025, Barclays analyst Ramsey El-Assal maintained an “Overweight” rating while raising the price target from $325 to $350. This upgrade reflects increased confidence in ADP’s growth potential and operational strength. The analyst pointed to strong client retention, expanding margins, and consistent revenue growth as key drivers for the adjustment.

🔽 Downgrades

⚖️ On October 22, 2024, UBS analyst Kevin McVeigh kept a “Neutral” rating but raised the price target from $270 to $295. The analyst cited concerns over valuation following a strong run-up in ADP’s stock price, suggesting limited upside potential in the near term.

📉 Similarly, on August 20, 2024, JPMorgan analyst Tien-Tsin Huang maintained an “Underweight” rating but increased the price target from $250 to $285. The downgrade was based on expectations of slower revenue growth and potential economic headwinds that could impact hiring trends, which directly affect ADP’s payroll processing business.

⚖️ Market Sentiment

ADP’s analyst ratings present a balanced perspective. Some analysts are optimistic about its long-term growth and operational efficiency, while others remain cautious due to valuation concerns and macroeconomic risks. The stock continues to perform well, but some experts suggest that much of the near-term upside may already be priced in.

Earning Report Summary

Automatic Data Processing, Inc. (ADP) just released its latest earnings report, and the numbers continue to paint a strong picture of growth and stability. The company delivered another solid quarter, with revenue climbing to $5 billion, marking an 8.2% increase compared to the same period last year. This momentum was driven by steady demand across its core services, particularly in payroll processing and HR solutions. Earnings per share also saw a nice boost, reaching $2.40, up 10.3% year-over-year.

Business Segments Holding Strong

ADP’s Employer Services segment brought in $3.4 billion, reflecting an 8% jump from last year. The main driver? Strong client retention and steady new business sign-ups. That said, the number of employees being processed on payrolls (known as “pays per control”) grew by only 1%, slightly down from 2% in the previous quarter. This could hint at a minor slowdown in hiring trends, but nothing alarming just yet.

The PEO Services segment also delivered, pulling in $1.7 billion, an 8% rise year-over-year. The number of worksite employees being serviced grew by 3%, hitting 746,000. However, the margins for this part of the business took a slight hit, largely due to higher benefits costs and increased operating expenses.

Making the Most of Client Funds

One of ADP’s quiet strengths is the money it earns on client funds before payroll is distributed. This quarter, interest income surged 21% to $273 million, benefiting from a higher average client fund balance of $35.3 billion and better interest rates. The company is making the most of its cash flow, which is always a good sign for investors.

Profitability and Cash Flow

On the profitability side, ADP reported $1.3 billion in adjusted EBIT, up 11%, with its overall profit margin expanding slightly. The Employer Services division saw margins improve, but PEO margins dipped a bit, thanks to rising costs.

The balance sheet remains in good shape, with $2.2 billion in cash on hand and stable long-term debt. ADP also generated $1.2 billion in operating cash flow, giving it plenty of flexibility for investments, dividends, and stock buybacks.

A Big Dividend Milestone

Long-term investors got something to celebrate—ADP raised its dividend for the 50th consecutive year, officially entering “Dividend King” status. That’s a rare and impressive achievement, reinforcing the company’s commitment to returning value to shareholders.

Looking Ahead

For the rest of the fiscal year, ADP expects revenue to grow between 6% and 7%, with earnings per share projected to rise 7% to 9%. Management is also aiming for slight improvements in profit margins as they focus on efficiency and growth.

Overall, ADP continues to show why it’s a reliable, well-managed company. The payroll and HR space remains essential, and ADP is positioned well to keep delivering steady growth and returns.

Financial Health and Stability

ADP’s ability to generate consistent revenue makes it one of the more stable companies in its sector. Payroll and HR services are essential for businesses, meaning ADP enjoys steady demand regardless of market conditions.

Key Financial Highlights

• Revenue: $19.9 billion (up 8.1% year-over-year)
• Net Income: $3.93 billion (up 9.7% year-over-year)
• Operating Margin: 25.9%
• Return on Equity: 83.72%

One standout metric is ADP’s return on equity (ROE) of 83.72%, showing how efficiently the company generates profits relative to shareholder investment. Few companies can match this level of profitability.

Balance Sheet Strength

• Total Cash: $2.22 billion
• Total Debt: $4.38 billion
• Debt-to-Equity Ratio: 86.2%

ADP operates with a reasonable debt level compared to its earnings power. While the debt-to-equity ratio is on the higher side, the company’s predictable cash flow makes it manageable. The financial foundation is strong, ensuring ADP can continue rewarding shareholders without taking on excessive risk.

Valuation and Stock Performance

ADP has long been known for trading at a premium, and that remains true today. With a trailing P/E ratio of 32.37 and a forward P/E of 28.49, it’s priced higher than many of its industry peers. That being said, companies with steady revenue growth and a history of dividend increases tend to command higher valuations.

Stock Performance

• 52-Week Range: $231.27 – $322.84
• Current Price: $310.43
• 50-Day Moving Average: $301.51
• 200-Day Moving Average: $278.79

ADP’s stock has climbed 27.1% over the past year, outperforming the broader market. This kind of stability is a major advantage for long-term investors. The stock’s beta of 0.78 also suggests lower volatility compared to the overall market, which is a plus for dividend investors looking for a smoother ride.

From a valuation standpoint, ADP isn’t cheap. Investors looking to add shares may want to wait for a pullback to get a better entry point.

Risks and Considerations

While ADP is a strong dividend stock, there are a few risks to keep in mind.

• High valuation: The stock trades at a premium multiple, which means future gains could be limited if earnings growth slows.
• Economic sensitivity: Since ADP’s revenue is tied to employment and payroll activity, a recession or slowdown in hiring could impact growth.
• Competitive pressures: The HR and payroll industry is highly competitive, with companies like Paychex and Workday offering alternative services. Increased competition could put pressure on pricing and margins over time.
• Regulatory risks: Changes in labor laws, payroll tax regulations, or compliance requirements could impact ADP’s operations.

Despite these risks, ADP’s history of resilience and financial strength makes it well-positioned to navigate challenges while continuing to reward investors.

Final Thoughts

ADP is a dividend growth powerhouse that has nearly reached Dividend King status with 49 consecutive years of increases. While its current 1.98% yield isn’t the highest, the combination of consistent dividend growth, strong cash flow, and financial stability makes it a compelling long-term investment.

For income investors looking for a safe, reliable dividend payer, ADP is worth considering. However, given its high valuation, it may be wise to wait for a better entry point before adding shares.

ADP’s steady performance, low volatility, and impressive dividend history make it a standout in any long-term dividend portfolio.