Over the past 10 years Paychex Inc (NASDAQ:PAYX) has returned an average of 4.00% per year from dividend payouts. The stock currently pays out a dividend yield of 3.34%, and has a market cap of US$21.50B. Does Paychex tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. Check out our latest analysis for Paychex
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Paychex fit our criteria?
The company currently pays out 78.17% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 73.79%, leading to a dividend yield of around 3.46%. Furthermore, EPS should increase to $2.71. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. PAYX has increased its DPS from $1.2 to $2 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes PAYX a true dividend rockstar. Relative to peers, Paychex generates a yield of 3.34%, which is high for IT stocks but still below the market’s top dividend payers.
With this in mind, I definitely rank Paychex as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three fundamental aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for PAYX’s future growth? Take a look at our free research report of analyst consensus for PAYX’s outlook.
- Valuation: What is PAYX worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether PAYX is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.