20 Worst Dividend Aristocrat Stocks According to Analysts

7. Automatic Data Processing, Inc. (NASDAQ:ADP)

Average Analyst Rating Score: 3.6

Automatic Data Processing, Inc. (NASDAQ:ADP) ranks seventh on our list of the worst dividend aristocrat stocks. The New Jersey-based management services company offers a quarterly dividend of $1.40 per share and supports a dividend yield of 2.31%, as of June 14. It has been rewarding shareholders with growing dividends for the past 49 years.

Automatic Data Processing, Inc. (NASDAQ:ADP)’s bears argue that the company benefits significantly from higher interest rates, as it can secure higher-yielding deposits with banks and earn more net interest on these balances. In fiscal Q3 2024, the company’s pre-tax earnings increased by $142 million, reaching $1.184 billion. Over the first nine months of its fiscal year, higher interest income has accounted for about half of ADP’s income growth. However, if the Federal Reserve lowers rates, the company will likely see a decrease in profit growth as the benefit from higher interest income diminishes.

Polen Capital also addressed this concern in its Q4 2023 investor letter.

“Automatic Data Processing, Inc. (NASDAQ:ADP) modestly underperformed during the quarter. The company’s revenue and earnings growth has been in line with our expectations. Still, market participants appear to be concerned about the prospect of higher unemployment and lower interest rates in 2024, factors that could present modest headwinds to ADP’s growth. Our view of the business and its long-term growth trajectory haven’t changed, and we believe the company continues to execute at a high level.”

Of the 920 hedge funds tracked by Insider Monkey at the end of Q1 2024, 52 funds held investments in Automatic Data Processing, Inc. (NASDAQ:ADP), down from 54 in the previous quarter. These stakes have a collective value of over $3.8 billion.