Week #6ADP

Stock of the Week #6 — Automatic Data Processing (ADP)

July 20, 2026

Five-box test: ✓ Pays · ✓ Raises · ✓ Safe · ✓ Undervalued · ✓ Yield that matters

Week six, another $100, and this week we're buying a company you've probably never thought about but have almost certainly been paid by.

So far we've bought a rural-goods retailer (Tractor Supply), a medical-device maker (Medtronic), a monthly-paying landlord (Realty Income), an electric utility (NextEra), and a snack-and-soda giant (PepsiCo). This week we add a sixth kind of business: industrials and business services. Automatic Data Processing (ADP) runs payroll. If you've had a paycheck, a direct deposit, or a W-2 in the last forty years, there's a very good chance ADP's software is what put the money in your account. About one in six American workers gets paid through them.

Why ADP

ADP is a 51-year Dividend King. It has raised its dividend every single year for 51 straight years, through every recession since the Ford administration, and never once cut it.

What makes it a wonderful business is boring and beautiful: switching costs. Once a company runs its payroll through ADP, moving to a competitor means risking that every employee gets paid late, or wrong, in the middle of a tax year. Almost nobody does it. So the revenue just keeps arriving, quarter after quarter, from tens of thousands of businesses who would rather not think about payroll ever again.

Right now the market is nervous about it, and the reason is almost funny. ADP's revenue rises and falls with employment, and ADP is famous for publishing the monthly jobs report that tells everyone whether employment is rising or falling. So when the market gets worried the job market is cooling, it sells the company that measures the job market. That fear is real, but a softer hiring year does not break a 51-year compounding machine, and the price tag reflects the worry.

That worry is why we can buy it at all. ADP is normally an expensive stock. Today it yields about 2.67%, which is roughly 31% more income than it has typically paid over the last five years. For a name that's usually too rich for our screen, that's the widest discount to its own normal price in years.

The five boxes

• Pays — yes, 51 years without a cut.
• Raises — 51 straight years of increases. A Dividend King.
• Safe — about 63% of earnings paid out, and this is the good part (below).
• Undervalued — today's yield sits about 31% above its own 5-year average, so it's meaningfully cheaper than usual.
• Yield that matters — about 2.67%. The lowest of anything we own, and the honest weak spot.

Five boxes, five checks, for a DividendAbundance Score of 84 — Strong.

The clean one

Last week's PepsiCo post was all about an asterisk. PepsiCo's payout ratio looked alarming at 93% because one-time write-downs had temporarily crushed its reported earnings, and we had to spend several paragraphs explaining why the scary number wasn't the real number.

ADP is the opposite, and after a run of candidates that all needed footnotes, it's a relief to write.

There's no asterisk here. ADP's payout ratio is about 63% of $10.72 in trailing earnings, and those earnings are clean. No impairments, no write-downs, no "adjusted" figure doing quiet work in the background. The dividend takes about two-thirds of the profit and leaves a third behind to reinvest. That's it. That's the whole story.

The growth is real too. ADP has raised its dividend about 10% a year recently, and about 12% a year over the last decade. Compare that to PepsiCo's roughly 4%. A 2.67% yield growing at 10% quietly overtakes a 4.3% yield growing at 4% in about eight years, and then keeps pulling away for as long as you hold it. That's the trade we're making: less income today for meaningfully more income later.

The numbers on this week's buy

This is the first week the portfolio started paying for itself. In the last few days Realty Income and Medtronic paid us dividends, and rather than let that cash sit, it went straight back to work in this buy.

• New money in: $100.00
• Dividends reinvested: $1.34 (Realty Income $0.43 + Medtronic $0.91)
• Total invested this week: $101.34
• Bought: 0.3976 shares at $254.85
• New annual dividend income added: about $2.70 per year

That's the quiet magic of this whole exercise. We're only six weeks in, and already we're putting in more than $100 a week without adding a dollar of extra effort, because the stocks we already own are chipping in. Every dividend any of these companies pays now flows straight into the next pick, so the income keeps building between our buys, on its own.

Six weeks in, six very different businesses, and an income stream that grows a little every month. The running totals are on the portfolio page, and the home-page slider lets you drag through time, and toggle to monthly, to watch it compound.

That's week six. We bought a clean 51-year Dividend King while the market was nervous about it, and we'll see you next week with pick number seven.

This is not financial advice. We're individual investors sharing our own approach and the reasoning behind our own real decisions, not licensed advisors. We own, or are buying, the stocks we write about in this series. Do your own research and consider speaking with a financial professional before investing. Dividend figures, yields, share counts, and prices are accurate to the best of our knowledge as of the publish date and will change over time.