There are four days left to purchase Automatic Data Processing, Inc. (NASDAQ: ADP) before the ex-dividend date
Automatic Data Processing, Inc. (NASDAQ: ADP) is set to trade ex-dividend within the next four days. Typically, the ex-dividend date is one business day prior to the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is an important date to know, as any purchase of shares made on or after that date may mean a late settlement that does not appear on the record date. This means that investors who buy Automatic Data Processing shares from September 9th will not receive the dividend, which will be paid on October 1st.
The company’s next dividend payment will be US $ 0.93 per share, and over the past 12 months, the company has paid a total of US $ 3.72 per share. Based on the value of last year’s payouts, Automatic Data Processing has a 1.8% return on the current stock price of $ 207.38. If you buy this company for its dividend, you should know if the automatic data processing dividend is reliable and sustainable. You have to see if the dividend is covered by profits and if it increases.
Check out our latest analysis for automatic data processing
Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. The automatic data processing pays an acceptable amount of 61% of its profits, a payment level common to most companies. Having said that, even very profitable companies can sometimes not generate enough cash to pay the dividend, which is why we always need to check if the dividend is covered by cash flow. Dividends consumed 61% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organizations.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it’s easier to raise the dividend when earnings rise. Investors love dividends, so if earnings go down and the dividend is reduced, expect a stock to be sold massively at the same time. Luckily for readers, Automatic Data Processing’s earnings per share have grown 13% per year over the past five years. The automatic data processing pays out just over half of its profits, suggesting that the company is striking a balance between reinvesting in growth and paying dividends. This is a reasonable combination that could portend further dividend increases in the future.
Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. Since our data began 10 years ago, Automatic Data Processing has increased its dividend by around 10.0% per year on average. It is encouraging to see the company raising its dividends as profits rise, suggesting at least some corporate interest in rewarding shareholders.
From a dividend perspective, should investors buy or avoid automatic data processing? Higher earnings per share usually result in higher dividends for stocks paying long-term dividends. That’s why we’re happy to see Automatic Data Processing’s earnings per share increase, even though, as we’ve seen, the company pays more than half of its earnings and cash flow – 61% and 61% respectively. Overall, it’s hard to get excited about automatic data processing from a dividend perspective.
So even though automatic data processing looks good from a dividend perspective, it’s still worth being aware of the risks involved in this stock. In terms of investment risks, we have identified 2 warning signs with automatic data processing and understanding it should be part of your investment process.
If you are in the dividend-paying stock market, we recommend that you check out our list of the highest dividend-paying stocks with a yield above 2% and a future dividend.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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