This Dividend King might stay under the radar for a while.
In the past year, automatic data processing (ADP) has faced some tough challenges. Firstly, worries about a sluggish job market have been pressing down on stocks in payroll processing and human resources software sectors.
More recently, the stock experienced a sell-off based on fears that generative artificial intelligence (AI) could negatively impact businesses. Investors see a parallel with enterprise software stocks, where there’s anxiety that the widespread adoption of AI could threaten ADP’s business model.
Key data points
Market capitalization
$88 billion
Daily range
$215.13 – $221.70
52-week range
$203.26 – $329.93
Volume
203K
Average volume
2.9 million
Gross profit
50.43%
Dividend yield
2.89%
Even with valid reasons for worry, it seems like the market might be overreacting, potentially creating an intriguing buying opportunity in this proven dividend stock.
From concern to overreaction
It’s quite logical for ADP investors to worry about how slowing growth and the embrace of AI could affect the company’s financial outlook. A significant chunk—over 60%—of ADP’s revenue is tied to its core payroll processing segment, meaning national employment directly influences its performance.
Similar concerns could extend to ADP’s cloud-based talent management and professional employer organization services. Yet, these worries clash with what expectations suggest.
Back in July, when ADP provided its guidance for the fiscal year ending June 30, 2025, the revenue growth forecast of 5% to 6% was slightly below what people anticipated. However, management recently increased this estimate, now projecting sales to reach the higher end of the previous forecast.
Signs of long-term hope from ADP
Looking to the next fiscal year, analysts anticipate growth in line with the current year’s forecasts. For the fiscal year wrapping up on June 30, 2027, they expect sales to rise 5.7% and profits to climb 9%. Factors like improved margins in non-payroll divisions and a $6 billion stock repurchase plan should contribute to stronger earnings growth.
This stable growth forecast is a good sign for ADP investors for a couple of reasons. First, consistent growth indicates that ADP is likely to remain a Dividend King—these are stocks that have increased their dividends for at least 50 consecutive years. ADP has raised its dividend for 51 years straight, with the latest hike being 10.3% last November.
Over the past decade, ADP’s dividend growth rate has averaged around 12.2%. The projected dividend yield sits at about 3.3%. Additionally, if some of these concerns ease up, the stock could see even more significant gains.
Currently, ADP is trading at under 20 times its estimated earnings for 2026, down from around 25 times its expected P/E ratio. When you put all this together, it becomes easier to see how long-term investors could benefit from the short-term turbulence surrounding ADP.
