ADP Dividend data by YCharts
Granted, ADP hasn't always been as generous with its dividend increases. During the financial crisis, ADP made only minimal dividend increases, preserving capital as it went through a tough time in its core business. Yet even at that point, ADP didn't give up on making big boosts, and with quarterly payouts having almost quadrupled in just the past decade alone, dividend investors can count on sustained growth in the quarterly payments they receive on their ADP shares.
2. Employment is back on track, giving ADP growth opportunities.
Automatic Data Processing provides outsourcing services to its clients, with a particular emphasis on payroll. As a result, ADP often does best when the economy has the most positive momentum, as a strong economy encourages more hiring and puts more businesses in a position in which they can afford to look outside their own walls to get help managing administrative functions like payroll.
Over the past five years since the financial crisis, ADP has seen impressive earnings growth, and positive employment numbers have a lot to do with those improved results. As you can see below, the 2008 recession really hit ADP's earnings hard, and the sluggish recovery that followed initially limited the company's ability to bounce back.
ADP Net Income (Annual) data by YCharts
But gradually, unemployment levels have started falling back down toward more normal levels. In particular, positive conditions in key areas of the U.S. economy, such as the energy industry, have driven labor-market strength in certain areas of the country. More broadly, a generally favorable view toward the overall economy has improved business confidence and encouraged employers to consider hiring new people and tapping ADP for more of its services.
Obviously, ADP will face business cycles in the future. But one sign of the strength of its dividend is that ADP has weathered short-term storms before without losing its dividend-paying resolve, and that doesn't appear likely to change anytime soon.
One of ADP's biggest strengths is that it targets some of the largest companies in the world to provide its services. In general, ADP has focused its efforts on big employers, and while it hasn't completely ignored mid-sized and small businesses, rivals and have suites of services that target smaller-sized employers more directly.
Source: ADP.
3. ADP has tapped a key market that its competitors haven't been able to penetrate.
One of ADP's biggest strengths is that it targets some of the largest companies in the world to provide its services. In general, ADP has focused its efforts on big employers, and while it hasn't completely ignored mid-sized and small businesses, rivals Paychex and Intuit have suites of services that target smaller-sized employers more directly.
Having large-company exposure makes ADP more stable during good times, but it also threatens to make it less nimble when opportunities to tap into broader employer markets arise. Moreover, as Paychex broadens its own target audience , ADP will repeatedly have to demonstrate that it's the best option for businesses of all sizes.
Automatic Data Processing isn't the best-known company in the U.S., but it's among the best dividend stocks investors could choose. With a history of strong business growth as well as a solid commitment to returning capital to shareholders, ADP should continue to be a top dividend stock well into the future.
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The article 3 Reasons Why Automatic Data Processing Is a Top Dividend Stock originally appeared on Fool.com.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Automatic Data Processing, Intuit, and Paychex. The Motley Fool owns shares of Intuit. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
