Regular readers know that we love Simply Wall Street Dividends. Automatic Data Processing Co., Ltd. (NASDAQ:ADP) is set to trade ex-dividend in the next four days. The ex-dividend date is his one business day before the record date and is the cut-off date on which a shareholder can be on the company’s books and receive dividend payments. The ex-dividend date is an important date to be aware of, as purchasing stocks after this date may result in delayed settlements that will not show up on the record date. This means you must purchase Automatic Data Processing stock by March 7th to receive the dividend, which will be paid on April 1st.
The company’s next dividend payment will be $1.40 per share, and in the last 12 months, the company paid a total of $5.60 per share. Based on the last year’s worth of payments, Automatic Data Processing stock has a yield of approximately 2.2% on the current price of $249.69. Dividends can be a significant contributor to investment returns for long-term holders, but only if they continue to be paid. As a result, readers should always check whether Automatic Data Processing has been able to grow its dividends, or if the dividends could be cut.
Read our latest analysis on Automatic Data Processing.
Dividends are usually paid out of a company’s profits. If a company pays more in dividends than it earned in profit, then the dividend might become unsustainable. Automatic Data Processing paid out 60% of its profits to investors last year, a normal payout level for most companies. A useful secondary check is to assess whether the automatic data processing generated enough free cash flow to pay the dividend. Last year, the company paid out 61% of its free cash flow as dividends, which is within the normal range for most companies.
It’s positive to see that Automatic Data Processing’s dividend is covered by both profit and cash flow. This usually indicates that the dividend is sustainable, as a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company’s payout ratio and analyst estimates of its future dividends.
Are profits and dividends growing?
Stocks in companies that generate sustainable earnings growth often have the best dividend prospects, as it’s easier to lift the dividend when earnings are rising. If profits decline significantly, the company may be forced to cut its dividend. Fortunately for our readers, Automatic Data Processing’s earnings per share have been growing at 15% per year over the past five years. Automatic Data Processing paid out just over half of its profits, suggesting the company is striking a balance between reinvesting in growth and paying dividends. This is a reasonable combination and could hint at further dividend increases in the future.
Many investors assess a company’s dividend performance by evaluating how much its dividend payments have changed over time. Since its inception 10 years ago, Automatic Data Processing has increased its dividend by an average of approximately 12% per year. It’s interesting to see that both earnings per share and dividends have grown rapidly over the past few years.
final point
Is Automatic Data Processing worth buying for its dividend? It’s good to see its earnings growing, since all of the best dividend stocks have grown their earnings significantly over the long term. However, we also note that Automatic Data Processing pays out more than half of its profit and cash flow as profit, which could limit dividend growth if earnings growth slows. It might be worth investigating whether the company is reinvesting in growth projects that could boost its profits and dividends in the future, but we’re not too optimistic about its dividend prospects at the moment.
Curious about what the future holds for automated data processing? Visualize past and future expected earnings and cash flow to see what the 18 analysts we track are predicting. please.
If you’re in the market looking for high dividends, we recommend the following: Check out our selection of high-dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
