What ADP actually does

ADP runs payroll for a very large number of businesses, from small shops to multinationals. It also sells human resources, benefits, tax and time-tracking software and services. If you have been paid through a company paycheck, there is a fair chance ADP processed it.

The company was founded in 1949 and has grown mostly by making itself difficult to replace: once a company’s payroll runs through ADP, switching is a hassle.

How the business makes money

Most revenue is recurring fees that customers pay each pay period or each year. ADP also earns interest on the large amount of client money that passes through its systems before it is paid out, which makes it more sensitive to interest rates than a typical software company.

The dividend story

ADP is a Dividend Aristocrat. It has raised its dividend every year for decades and pays it quarterly. Because the business is steady and needs little capital, it can return a lot of cash while still growing the payout.

What to keep an eye on

  • Employment levels. More employees on payrolls means more fees.
  • Interest rates. Lower rates reduce income earned on client funds.
  • Competition. Paychex, Workday and newer cloud payroll providers.
  • Security. Handling payroll data makes it a target for cyber attacks.

Quick take

ADP is a sticky, recurring-revenue business with a long record of dividend growth. It is rarely exciting, and that steadiness is the appeal.