Just four days before Automatic Data Processing, Inc. (NASDAQ: ADP) trades ex-dividend
Automatic Data Processing, Inc. (NASDAQ: ADP) is set to trade ex-dividend within the next four days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders must be on the books of the company to receive a dividend. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. In other words, investors can purchase Automatic Data Processing shares before December 9 in order to be eligible for the dividend that will be paid on January 1.
The company’s next dividend payment will be US $ 1.04 per share, and over the past 12 months the company has paid a total of US $ 4.16 per share. Based on the value of last year’s payouts, the Automatic Data Processing share has a rolling return of approximately 1.8% on the current share price of $ 229.89. Dividends are an important source of income for many shareholders, but the health of the business is crucial to sustaining these dividends. As a result, readers should always check whether automatic data processing has been able to increase its dividends or whether the dividend could be reduced.
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. Automated data processing paid 59% of its profits to investors last year, a normal payout level for most companies. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. It has paid out more than half (71%) of its free cash flow in the past year, which is within an average range for most companies.
It is positive to see that the automatic data processing dividend is covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a lower payout ratio. greater safety margin before the dividend is cut.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
NasdaqGS: ADP Historical Dividend December 4, 2021
Have profits and dividends increased?
Companies with constantly increasing earnings per share usually make the best dividend-paying stocks because they generally find it easier to increase dividends per share. Investors love dividends, so if profits fall and the dividend is reduced, expect a stock to be sold massively at the same time. For this reason, we are pleased to see that Automatic Data Processing earnings per share have grown by 14% per year over the past five years. Automatic Data Processing has an average payout ratio that suggests a balance between profit growth and shareholder reward. Given the rapid rate of growth in earnings per share and the current level of payout, there may be a possibility of further dividend increases in the future.
Most investors will primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Over the past 10 years, Automatic Data Processing has increased its dividend by around 11% per year on average. It is exciting to see that earnings and dividends per share have increased rapidly over the past few years.
The bottom line
Is automatic data processing worth buying for its dividend? Higher earnings per share generally result in higher dividends for stocks that pay dividends over the long term. This is why we are happy to see Automatic Data Processing earnings per share increase, even though, as we have seen, the company pays more than half of its earnings and cash flow – 59% and 71% respectively. Overall, we are not extremely bearish on the stock, but there are probably better dividend investments.
Curious about what other investors think about automatic data processing? Find out what analysts are forecasting, with this visualization of its historical and future estimated earnings and cash flow.
A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.
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