ADP competes in the human resources administration services industry. The firm provides services that streamlines and improves payroll and benefits management for employers of small, medium, or large businesses. It serves more than 550,000 clients with 46,000 employees worldwide. Some of their newest clients include:
Earnings vs Cash Flow
ADP’s current 10 year dividend growth rate is 12.44%!
Out of the last 10 years ADP has virtually had NO DEBT!!!!
In Chapter 8 of The Intelligent Investor, Benjamin Graham, the father of value investing, describes the concept of Margin of Safety:
Any investor, who’s main goal is to preserve capital, should seek, in all his or her investments, a significant difference between the current value of a business and the price in which the business can be bought. This insures protection in case of an unfavorable event and to maximize the investment return if the analysis is confirmed.
In the words of his disciple, Warren Buffett: “Never depend on a good sale. Get a purchase price so attractive that even a mediocre sale will produce good results.
Although given the title of “Dividend King” we must be vigilant in maintaining price discipline. We typically purchase operating companies at 8-10 times Cash Flow. However, a stock like this warrants special attention due to its size and dominance of the market. We will put a value on the business of 30 times Cash Flow.
Conclusion & Valuation
ADP has consistent rising dividends, strong cash flow, and almost zero debt!
I am buying up to $50.25 and not a penny more!