Known for its cloud-based human capital management (HCM) solutions, Automatic Data Processing (ADP 0.92%) is a top leader in human resources management and software for companies around the globe. ADP serves over 1.1 million clients around the world, and its solutions are used in more than 140 different countries and territories to pay more than 42 million workers.
The story of this payroll and human resources giant goes back to 1949, when the company was founded by Henry and Joe Taub as Automatic Payrolls, Inc. At the time, the business was a manual payroll processing business, but the company began to automate with the influx of new technology that occurred in the mid-20th century. By the early 1960s, the company was doing business under the name Automatic Data Processing, leveraging the power of computers and punch card machines to complete work for its clients.
ADP has been a publicly traded company since 1961. By the mid-1980s, roughly 40 years into its history as a company, ADP passed the $1 billion annual revenue mark and was processing paychecks for approximately one-fifth of the workforce in the U.S. ADP has grown through external acquisitions, as well. Through the years, it's acquired an administration services provider, a payroll management services company, a digital payments brand, and a freelance talent management platform, among others.
In 2024, ADP was included in Fortune Magazine's "World's Most Admired Companies" for the 18th year in a row. In this deep dive into investing in ADP, we'll explore how to buy ADP stock, whether it could be a good use of your investment dollars, if the company is profitable, whether it pays a dividend, and so much more.
Stock
How to invest
How to buy ADP stock
Because ADP is a publicly traded company, you can buy shares as easily as you would any other U.S.-listed stock. If you're interested in snagging a few shares of the company, here's your step-by-step guide for how to buy ADP stock.
Step 1: Open a brokerage account
If you don't already have a brokerage account, you'll need to open one. Fortunately, opening a brokerage account can be a relatively brief online excursion with platforms like Fidelity, Interactive Brokers Group (IBKR 1.23%), or Robinhood (HOOD 3.76%), to name just a few options. It's worth looking at the advantages and disadvantages of various trading platforms so you can decide which make the most sense for your personal investing journey.
There are numerous factors you'll want to consider when selecting the brokerage platform that is right for you. Consider the type of account that you want to open, such as a standard taxable account or a tax-advantaged account. You'll also want to think about the tools and support the broker offers, any fees the platform charges for account transfers, and whether there are requirements like minimum balance thresholds. Features like security and account protection should also weigh upon your final decision.
Step 2: Figure out your budget
Once your brokerage account is ready to go, consider how much you want to invest in ADP stock. Some investors like to follow the method of dollar-cost averaging, which involves putting a set amount of investment capital into specific investments regardless of the price they are trading at in that particular point in time.
Regardless of the method you follow, investing for the long-term and only putting cash into businesses that you believe are a wise choice of your capital as well as reflect your core investment values is key. You should also aim to never invest more than 10% of the value of your total investment holdings into a single stock.
Step 3: Do your research
Before you buy shares of ADP stock or any other stock, you should make sure you conduct thorough research on the business. You should make sure you understand the prospects and risks of the business, how it makes money, what its balance sheet looks like, and whether the company is a more growth-oriented or value-driven investment.
Consider the competitive moat of the business, whether or not it has a durable growth runway, and what its history of financial growth looks like. It's also a good idea to understand the industry that the business operates in, and what competition it's up against as you form a clearer picture of its overall growth story.
Once you have constructed a solid investment thesis, you should be able to determine whether the company aligns with the goals you have set for your portfolio. You should never be investing cash that you will soon need for financial obligations like bills or to pay down outstanding debt, and it's ideal to have a minimum buy-and-hold horizon of three to five years for any stock you invest in.
Step 4: Place an order
If you're ready to buy shares of ADP stock, then it's time to place your order. There are two primary types of stock orders. These are market orders and limit orders. A market order completes your order at whatever price the stock is currently trading at. However, if you place a limit order, your order will not be filled unless and until the stock is trading at a specific price that you identify.
Be aware that with a limit order, your order might not be filled for quite some time, if at all. For that reason, if you're confident that you want to add shares of a company to your portfolio, you should select a market order.
Should I invest?
Should I invest in ADP stock?
Whether or not you should invest in ADP stock will depend on your investing style. This is traditionally a value-oriented business that is also a nice stock play for income-seeking investors, so if you gravitate toward value and/or dividend investing, this company could be an excellent addition to your portfolio. On the other hand, if you tend to gravitate toward high-growth stocks, you might decide you want to look elsewhere.
Still, there are a lot of things to like about ADP stock. The company is a leader in the payroll and workforce management market. Many of ADP's clients rely on the business to handle most or all of their human resources needs, and outsourcing these tasks allows those companies to focus instead on their core operations. ADP remains accessible to its client at all times through mediums like call and chat options to an artificial intelligence-powered communication solution.
ADP is rapidly integrating artificial intelligence (AI) into its various software offerings and launched a new product called ADP Assist in 2024. ADP Assist is a generative AI tool that provides conversational solutions to many of the most common human resources needs, including payroll, recruitment, analytics, and compliance. For example, ADP Assist can be used by clients to verify payroll information, check for issues, and simplify report creation for human resources professionals.
The company divides its business operations and revenue sources into two reportable segments: employer services and professional employer organization (PEO). Its employer services segment helps everyone, from small businesses and solo practitioners to large multinational companies, to manage their employees, processes, and tools. These solutions include cloud-based offerings and other services that support tasks such as payroll services, administering benefits, talent management, compliance services, and insurance services.
The PEO allows companies to take advantage of full-service outsourcing of various employment administration tasks, which can range from handling payroll to administering benefits. ADP's PEO business provides comprehensive outsourcing services through employment administration professionals who are co-employed by ADP and the client, which could be a small, mid-sized, or large business.
In the company's fiscal 2024, its employer services segment delivered 8% revenue growth and its PEO services segment delivered 4% revenue growth compared to fiscal 2023. Consolidated revenue rose 6.6% from the previous fiscal year to $19.2 billion. Management is forecasting overall revenue growth in fiscal 2025 to be in the 5%-to-6% range, while ADP stock closed out the last fiscal year with cash and cash equivalents of $2.9 billion on its balance sheet.
ADP operates in a large and growing total addressable market in which it remains a dominant force in most of the subsectors it serves. The global human capital management market was valued in the ballpark of $29 billion as of 2023, and is expected to jump to more than $63 billion by the early 2030s. Its balance sheet is in solid shape and its businesses are growing at a favorable rate for a business at this scale of size and maturity.
Profitability
Is ADP stock profitable?
ADP stock is profitable. In the company's fiscal 2024, it delivered net earnings of $3.8 billion, up 10% from the prior year. It's also delivered operating cash flow of more than $4 billion and free cash flow of $3.7 billion over the trailing 12 months.
ADP benefits from an asset light business model. It also enjoys well-diversified sources of business growth that flow to the bottom line based on the wide swath of human capital management services it provides. These services are essential for everyone, from mom-and-pop shops to massive enterprises.
Dividends
Does ADP stock pay a dividend?
ADP stock does pay a dividend and has an incredibly impressive history of not only maintaining but also raising that payout. As of late October 2024, it had increased its dividend every year for 49 years in a row. Its dividend yield was 1.92%, a bit higher than the average S&P 500 stock (1.3%).
ADP stock pays a forward annual dividend rate of $5.60 and maintains an extremely favorable payout ratio of approximately 60%.
Exchange-Traded Fund (ETF)
ETFs
ETFs with exposure to ADP stock
There are many exchange-traded funds (ETF) that provide exposure to ADP stock. An ETF can be a great way to get exposure to stocks you're interested in without holding shares of the individual stocks. This gives you instant diversification as you expand your portfolio holdings.
Some ETFs to consider if you decide you'd like to invest in shares of ADP stock along with many other stocks include SPDR S&P 500 ETF Trust (NYSEARCA:SPY), iShares Core S&P 500 ETF (NYSEARCA:IVV),and Invesco ETF Tr-Invesco QQQ Tr, Series 1 ETF (QQQ 0.87%).
Stock splits
Will ADP stock split?
ADP stock has split multiple times throughout the company's history. These include the following splits:
- May 22, 1981 (2-for-1)
- June 9, 1986 (2-for-1)
- May 1, 1991 (2-for-1)
- January 2, 1996 (2-for-1)
- January 4, 1999 (2-for-1)
- April 2, 2007 (10,000-for-9,033)
- October 1, 2014 (1,139-for-1,000)
Related investing topics
The bottom line on ADP stock
ADP has a lot of favorable qualities as a stock. It's a leader in human capital management solutions, and benefits from a market-leading business that has survived economic highs and lows while continuing to grow revenue as well as profits. The company's impressive track record as an income stock and enviable payout ratio also make it a good stock for investors searching for extra cash to reinvest or save.
As private sector job growth expands and economic conditions continue to improve after a difficult few years, ADP's flagship businesses are well poised to benefit. This value stock could be a solid addition to a long-term investor's portfolio.
FAQ
Investing in ADP stock FAQ
Is ADP a good stock to own?
ADP is a profitable business with leadership in multiple niches of the human capital management industry, which could make it a smart pick for long-term investors.
Does ADP stock pay dividends?
ADP pays dividends and increases its payout regularly. It has boosted its payout every year for 49 years in a row at this point.
How do you buy ADP stock?
You can buy ADP stock on any brokerage platform of your choice.
Is ADP publicly traded?
ADP is a publicly traded stock.
