Dividend Aristocrat ADP Rewards Shareholders with 21% One-Year Total Returns (ADP)

Automatic Data Processing, Inc. (NASDAQ:ADP) — a dividend aristocrat with 43 consecutive annual dividend hikes — rewarded its shareholders with a total return of more than 21% over the past 12 months.

The exceptional rate of return on shareholders’ investment is a result of a steadily rising capital gains and a long streak of annual dividend boosts. While the company’s 2% dividend yield has been suppressed slightly by the fast-rising share price, the current yield is still higher than the simple average yield of the entire Technology sector and the average yield of the Business Software & Services industry segment.

ADP’s current streak of boosting its annual dividend for the past 43 consecutive years meets one of the requirements which makes ADP a Dividend Aristocrat. A Dividend Aristocrat is a designation currently bestowed on just 57 companies. To qualify for the Dividend Aristocrat designation a company must be a component of the S&P 500 Index, have a market capitalization of at least $3 billion and a current streak of at least 25 consecutive annual dividend hikes.

The overall market correction in December 2018, pushed the share price’s 50-day moving average below its 200-day counterpart between late January 2018 and early March 2019. However, since breaking back above the 200-day average on March 7, 2019, the 50-day average has been rising steadily. The share price remained above both moving averages since late January and only dropped below the 50-day average in the last week. The current pullback from the share price’s all-time high in late April might look as a buying opportunity for some investors. However, investors with lower risk tolerances will most likely wait to see the share price bounce back above the 50-day moving average before considering taking a long position in this Dividend Aristocrat stock.

Automatic Data Processing, Inc. (NASDAQ:ADP)

Founded in 1949 and headquartered in Roseland, New Jersey, Automatic Data Processing, Inc. provides business process outsourcing services for more than 650,000 clients in more than 110 countries. The company operates through two segments, Employer Services and Professional Employer Organization (PEO) Services.

The Employer Services segment offers software and service-based business solutions that support human resources (HR) business processes and technology-enabled human capital management. Its offerings include payroll services, benefits administration, talent management, HR management, time and attendance management, insurance services, retirement services and tax compliance services.

The PEO Services segment offers HR outsourcing solutions through a co-employment model. This segment offers HR administration services, such as employee recruitment, payroll and tax administration, time and attendance management, benefits administration, employee training and development and employee leave administration. Additionally, this segment provides services for management of employee benefits and guidance on compliance with federal, state and local employment laws and regulations.

ADP’s current $0.79 quarterly dividend is 14.5% higher than the $0.69 from the same period last year. The new quarterly distribution is equivalent to a $3.16 annualized payout and yields 2%. Because the share price advanced at a slightly higher pace than the dividend distribution, the current dividend yield is 5.6% lower than the ADP’s own 2.1% average yield over the past five years.

While slightly lower than ADP’s own five-year average, the company’s current dividend yield is 82% higher than the 1.09% simple average yield of the entire Technology sector. Additionally, ADP’s current yield outperformed the 0.79% average yield of its peers in the Business Software & Services industry segment by 150%. Moreover, ADP’s current yield is even 35% higher than the 1.47% average yield of the segment’s only dividend-paying companies.

The current streak of consecutive annual dividend hikes that made ADP a Dividend Aristocrat began in 1976. However, the company has raised its annual payout amount more than 10-fold just in the past two decades. Over that 20-year period, the company enhanced its annual dividend at an average growth rate of 12.4% per year. Investors interested in grabbing some of those dividend distributions should act before the upcoming ex-dividend date on June 13, 2019. ADP will distribute the next round of its dividends to all shareholders of record on the July 1, 2019, pay date.

ADP’s share price has been rising steadily and with minimal volatility for more than a decade. The trend continued through the first three quarters of 2018 as well. However, driven by the market correction in late 2018, the share price dropped to its 52-week low of $121.95 on December 24, 2018. This closing price was nearly 10% below the price level from the beginning of the trailing 12-month period. However, the share price recovered all those losses by mid-February 2018 and continued to rise higher. By April 23, 2019, the share price had reached its new all-time high of $165.04.

After peaking in late April, the share price pulled back 3.4% and closed on June 4, 2019, at $159.45. This closing price was nearly 19% higher than it was one year earlier, as well as almost 31% above the 52-week low from late December 2018. Additionally, the June 4 closing price was also 130% higher than it was five years ago.

The combination of robust asset appreciation and the long streak of double-digit-percentage annual dividend hikes rewarded ADP’s shareholders with a 21.2% total return over the past 12 months and an 88% total return over the past three years. Additionally, the shareholders more-than doubled their investment with a total return of 143% over the past five years.

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