Why Automatic Data Processing Stock Is the Market’s Best Indicator

ADP StockCross Country Private Sector Hiring the Ultimate Telltale Sign

Cutting through all the noise in this choppy market, Automatic Data Processing (NASDAQ:ADP) is itself perhaps the best indicator for equity investors. Not that a major market correction wasn’t unreasonable. This market’s been due for a correction for a number of quarters. Quite frankly, it should’ve happened last year.

Automatic Data Processing is the well-known payroll and benefits administration outsourcing company out of Roseland, N.J.

Wall Street earnings growth estimates for ADP stock are robust for this year and next, and this dividend-paying stock boasts an excellent track of capital gains and increasing dividend payments to stockholders. ADP stock is a benchmark position you want on your radar—even if you aren’t interested in it for investment.

The company’s medium-term stock chart is featured below:


Automatic Data Processing Inc

Chart courtesy of www.StockCharts.com

ADP reports a lot of useful statistics regarding private sector employment among all states. According to the company, in January, Texas and California each added approximately 22,000 private sector jobs, mostly in professional and business services, construction, transportation, and utilities.

ADP reports that a number of states continue to add a meaningful amount of private sector employment positions. This is a useful metric to keep in mind.

Not only has ADP stock proven to be a solid wealth creator in terms of direct capital gains on the stock market, but it’s also consistently increasing dividends on a annualized basis. This provides a lot of certainty for investors and it is a very good quality for a stock to offer.

Back in October 2014, Automatic Data Processing spun off CDK Global Inc (NASDAQ:CDK), which is an information technology/marketing firm focused on the automobile industry. The spin off was a nice gift; each three shares owned by ADP shareholders received one share of CDK, which is now worth between $6.5 and $7.0 billion on the stock market.

ADP stock is an excellent candidate for automatic dividend reinvestment, which is an investment strategy I’m very fond of, especially in a slow-growth world.

If you bought, for example, ADP stock around the end of 2009, your simple rate of return to date would be around 137%. But if you automatically reinvested the company’s dividends into new shares, and taking into consideration the CDK spin off, the total rate of return to date accelerates to almost 189% (calculation thanks to morningstar.com).

The Bottom Line on ADP Stock

In any case, ADP stock is its own benchmark position on the domestic employment situation. The stock has been doing much better than the broader market and this position remains a favorite among institutional investors.

The company’s most recent quarter, the second fiscal quarter of 2016, saw revenues grow six percent to $2.8 billion (eight percent on a constant dollar basis).

Diluted earnings per share from continuing operations improved seven percent to $0.74 and the company bought back 5.2 million of its own shares in its latest quarter spending $446 million.

A dividend-paying stock like ADP is definitely worth watching, even if to review the company’s employment reports. Private sector employment is growing according to ADP. It’s something to keep in mind when determining your own stock market view.