3/10/25
Insperity, Inc. (NYSE: NSP) has carved out a strong position in the human resources and business solutions space, focusing on small and mid-sized businesses. The company provides everything from payroll processing to employee benefits administration, helping businesses manage their workforce more effectively.
Over the years, Insperity has built a reputation for consistency, not just in its business operations but also in its commitment to rewarding shareholders. It has a long history of dividend payments, making it an appealing option for investors looking for reliable income. However, with a high payout ratio and a valuation that raises some questions, it’s worth taking a closer look at whether NSP is a sustainable dividend play in the long run.
Key Dividend Metrics
- 💰 Dividend Yield: 2.66%
- 📈 5-Year Average Dividend Yield: 2.04%
- 💵 Forward Annual Dividend Rate: $2.40
- 💡 Payout Ratio: 97.93%
- 🗓️ Ex-Dividend Date: March 13, 2025
- 📅 Next Dividend Payment Date: March 27, 2025
- 📜 Consecutive Years of Dividend Payments: Over 15
Dividend Overview
Insperity’s dividend yield currently sits at 2.66%, which is a step above its five-year average of 2.04%. For income-focused investors, this makes the stock look like a strong candidate for a portfolio that prioritizes cash flow. The company has consistently paid dividends for more than 15 years, reinforcing its track record of returning value to shareholders.
However, the payout ratio is a cause for concern. At nearly 98%, it suggests that almost all of the company’s earnings are going toward dividend payments. While that’s great in the short term for income seekers, it does raise questions about long-term sustainability, especially if earnings hit a rough patch.
Dividend Growth and Safety
Insperity has done a solid job of growing its dividend over time. Investors have seen steady increases, which is always a good sign. A growing dividend means management is confident in future earnings, and it also helps investors keep pace with inflation.
That said, with such a high payout ratio, future increases could be more difficult to sustain unless earnings continue to rise. If profits stagnate or decline, the company may have to make some tough decisions about maintaining or adjusting its dividend.
For now, the dividend appears safe, but it’s walking a fine line. Investors should keep an eye on the company’s earnings growth, as that will ultimately determine whether Insperity can keep up its track record of increases.
Chart Analysis
Recent Price Action
Insperity (NSP) has shown strong momentum recently, closing at $90.36 after hitting a high of $90.97 on the day. The stock opened at $86.47 and saw a low of $86.24, reflecting a solid intraday recovery. Volume for the day stood at 586,189, suggesting decent trading interest.
Looking at the bigger picture, the stock has made a significant rebound from its lows in recent months. After trading below $70 in early January, NSP has rallied sharply, breaking past key resistance levels.
Moving Averages
The 50-day moving average is beginning to slope upward, indicating that short-term momentum is improving. However, the 200-day moving average remains in a downward trend, suggesting the stock is still in a longer-term recovery phase.
The fact that NSP is now approaching the 200-day moving average is an important technical moment. A decisive break above this level could signal a trend reversal, while failure to sustain the rally may result in renewed selling pressure.
Volume Trends
Volume has increased in recent weeks, particularly during the sharp move higher. This suggests that buyers have stepped in aggressively, helping to fuel the rally. Spikes in volume often signal strong conviction, but it’s also important to watch if this enthusiasm fades in the coming sessions.
RSI and Momentum
The Relative Strength Index (RSI) has been climbing and currently sits near overbought territory. This suggests that the stock has strong momentum, but it also raises the possibility of a near-term pullback. If RSI moves above 70, it could indicate that the stock is overheating in the short term.
At the same time, the steady rise in RSI over the past few weeks suggests that buyers have been firmly in control. If RSI stays elevated without a sharp pullback, it could indicate that the rally still has room to run.
Key Levels to Watch
Right now, the $90–$92 range is an important area of resistance, as it aligns with the downward-sloping 200-day moving average. If NSP can push through and hold above this level, it would be a strong sign of a longer-term reversal.
On the downside, the $80 level now looks like key support, as it was the breakout point from the recent uptrend. A drop back below this level could signal weakness and invite further downside pressure.
Analyst Ratings
Downgrades
- 🔻 William Blair: On September 24, 2024, William Blair downgraded Insperity from Outperform to Market Perform due to concerns over slowing revenue growth and increased competition in the HR outsourcing space. Analysts cited a more challenging macroeconomic environment that could impact small and mid-sized business clients, which make up a large portion of Insperity’s customer base.
- 🔻 Truist Securities: On April 24, 2023, Truist Securities lowered its rating from Buy to Hold, with a price target of 128. The downgrade was driven by concerns over the company’s high payout ratio and a potential slowdown in earnings growth. Analysts noted that while Insperity’s fundamentals remain strong, the company’s valuation may be stretched given the broader market conditions.
Initiations
- 🏁 JPMorgan: On October 22, 2024, JPMorgan initiated coverage on Insperity with an Underweight rating and a price target of 90. Analysts pointed to potential headwinds in the HR services industry, including rising labor costs and regulatory uncertainties, as factors that could weigh on future earnings. They also highlighted concerns about the company’s debt levels and dividend sustainability.
Price Targets
- 🎯 The average price target for Insperity currently stands at 95.67, reflecting an 11.33% potential upside from current trading levels.
- 📉 Price targets among analysts range from a low of 88 to a high of 109, indicating a mix of caution and optimism about the company’s growth prospects.
Consensus Rating
- ⚖️ The overall consensus among analysts is a Hold rating, suggesting that while Insperity remains a solid company, its near-term growth potential may be limited by external factors such as economic conditions and competitive pressures.
Earnings Report Summary
Insperity just released its latest earnings report, and there’s a lot to unpack. The company showed some steady revenue growth, but there were also a few challenges along the way. Let’s break it down.
Fourth Quarter 2024 Highlights
- Revenue came in at $1.6 billion, up 2% from the previous year. This was largely due to a 4% increase in revenue per worksite employee (WSEE). However, the total number of WSEEs declined slightly, down 2% to 309,093 per month.
- Gross profit dropped 2% to $218 million, though the profit per WSEE remained stable, which is a positive sign that margins are holding up.
- Operating expenses jumped 17%, which was expected. A big chunk of this increase—about $19 million—was tied to the company’s ongoing partnership with Workday.
- Net income for the quarter was in the red, with a $9 million net loss, while adjusted EBITDA landed at $23 million.
- Earnings per share (EPS) came in at $0.05, reflecting the higher costs and lower profits for the quarter.
Full Year 2024 Highlights
- Annual revenue grew 1%, reaching $6.6 billion. This was mainly driven by higher pricing and improvements in certain cost programs, even though the average number of WSEEs declined 2% for the year.
- Gross profit saw a slight 1% increase, with profit per WSEE up 3%, thanks to better pricing strategies and improved management of benefits costs.
- Net income finished the year at $91 million, with adjusted EBITDA totaling $270 million.
- The company returned $152 million to shareholders through $63 million in share buybacks and $89 million in dividends.
Looking Ahead to 2025
Insperity has set its expectations for the new year, and it looks like management is feeling optimistic.
- The company expects to grow its worksite employee base by 2-4% in 2025.
- Adjusted EBITDA is projected to land between $240 million and $285 million, giving a decent range for potential profitability.
Key Strategic Moves
One of the company’s biggest investments this past year was its partnership with Workday, which is expected to streamline operations and enhance its HR services. This investment pushed operating expenses up by $57 million in 2024, but management sees it as a long-term play that should pay off in the future.
Financial Strength
On the bright side, Insperity is sitting on a strong cash balance of $1.1 billion, giving it plenty of flexibility for growth, shareholder returns, or reinvestment in the business.
While the company faced some challenges, such as rising costs and a slightly shrinking workforce, it’s still maintaining steady revenue growth. If 2025 plays out as expected, Insperity could be in a solid position to benefit from its recent investments and strategic partnerships.
Financial Health and Stability
From a cash flow standpoint, Insperity is in good shape. The company generated $520 million in operating cash flow over the past year, and its free cash flow came in at $453.62 million. Those are healthy numbers, and they provide some reassurance that the company can continue to fund its dividend for now.
However, the balance sheet raises some red flags. The company’s debt-to-equity ratio is sitting at a sky-high 468.04%, indicating that Insperity is highly leveraged. While it does have over $1 billion in cash on hand, such a high level of debt can become problematic if the economy slows down or interest rates rise further.
Liquidity is another area that warrants attention. The company’s current ratio is 1.08, meaning it has just enough short-term assets to cover its short-term liabilities. While this isn’t an immediate red flag, it does suggest that the company doesn’t have a lot of wiggle room if it faces unexpected financial pressures.
Valuation and Stock Performance
- Trailing P/E Ratio: 37.34
- Forward P/E Ratio: 25.38
- Price-to-Sales Ratio: 0.52
- Price-to-Book Ratio: 34.68
Looking at Insperity’s valuation, it’s clear that the stock isn’t cheap. A trailing price-to-earnings ratio of 37.34 and a forward P/E of 25.38 suggest that investors are pricing in a decent amount of future growth.
The price-to-book ratio is another eye-opener at 34.68. That’s significantly higher than what’s typically considered reasonable, and it implies that investors are willing to pay a premium for Insperity’s future earnings potential rather than its current assets.
The stock has been volatile over the past year, with a 52-week range between $68.79 and $110.72. It’s currently trading around $94.21, which is closer to its recent highs but still below its peak. The 50-day moving average is $80.38, while the 200-day moving average is $86.74, suggesting that momentum has been relatively strong in recent months.
Risks and Considerations
High Payout Ratio
A payout ratio near 98% leaves little room for error. If earnings take a hit, Insperity may need to cut or freeze its dividend to stay financially stable. Investors should monitor earnings reports closely to ensure that dividend payments remain sustainable.
Economic Sensitivity
Since Insperity’s business is closely tied to small and mid-sized companies, an economic downturn could hurt its earnings. When businesses struggle, they may reduce their reliance on Insperity’s services, which could lead to lower revenue and profit margins.
High Debt Levels
The company’s high debt-to-equity ratio suggests that it has taken on significant leverage. If interest rates stay high or rise further, debt servicing costs could eat into profits, putting even more pressure on dividend payments.
Valuation Concerns
Insperity’s current valuation seems a bit stretched. If the company fails to meet growth expectations, the stock could see a sharp pullback. Investors should be aware that they are paying a premium price for the company’s future prospects.
Final Thoughts
Insperity offers an appealing dividend yield and a solid track record of rewarding shareholders. For income investors, the company provides consistent payouts and has maintained a reliable dividend history.
However, there are concerns to keep in mind. The payout ratio is extremely high, leverage is significant, and the valuation suggests that the stock is priced for growth. If earnings stumble, Insperity could face challenges in maintaining its current dividend policy.
For now, the company remains an interesting choice for those looking for dividend income, but it’s one that comes with a fair share of risks. Investors should keep a close eye on earnings performance and broader economic trends to ensure that Insperity can continue delivering on its dividend commitments in the long run.
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