We recently published a list of 15 Best NASDAQ Dividend Stocks To Buy. In this article, we are going to take a look at where Automatic Data Processing, Inc. (NASDAQ:ADP) stands against other best NASDAQ dividend stocks to buy.

The NASDAQ, heavily comprised of technology stocks, has been on a consistent upward trajectory for some years. In 2023, it experienced remarkable growth, marking its best performance since 2020 with an increase of over 43%. In 2024, the index continued to surpass market expectations with a 28.64% gain. This impressive performance is largely driven by the excitement surrounding artificial intelligence, which has significantly boosted major tech stocks and the broader market throughout 2023 and into this year. Analysts suggest that the NASDAQ could be the index of the future, as its companies have shown a strong ability to adapt to evolving market trends.

NASDAQ’s consistent outperformance can be observed over several years. According to a report by Invesco, since January 1, 2008, the Nasdaq-100 Index has delivered a cumulative total return of 750%, significantly outpacing the broader market’s 315% return. This success is largely attributed to the innovation driven by tech companies, which continues to attract investors. For instance, the technology sector in the broader market has achieved an annualized total return of 20.65% over the past decade, compared to 12.80% for the market. This leadership is understandable given the rapid adoption of technology in recent years. The Industry Classification Benchmark (ICB) noted that the Nasdaq-100 has approximately 55% exposure to the tech sector, in contrast to about 32% for the broader market.

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Tech companies are not only driving innovation but are also swiftly adjusting their dividend strategies. In 2024, many prominent tech firms began issuing dividends, significantly boosting the overall dividend pool. Although dividends are traditionally linked with value stocks rather than the high-growth companies fueling the AI surge, analysts suggest this shift broadens the appeal of these stocks to new investor groups while putting surplus cash to use. Typically, growth-focused companies prioritize reinvestment over returning earnings to shareholders. However, experts like Ted Mortonson from Baird argue that these dividend payments won’t undermine the companies’ future dominance. Here are some other comments from the analyst:

“I don’t view it as a problem. I view it as they’ve won. They’ve won the technology side. They’ve won on the business-model side, and they’re going to win on the Gen AI cycle.”

Overall dividends are becoming increasingly popular among investors, with many US companies either raising or maintaining their payouts. Howard Silverblatt, a Senior Index Analyst at S&P Dow Jones Indices, suggested that with an anticipated reduction in interest rates by the FOMC in 2025, coupled with record earnings forecasted for the fourth quarter of 2024 and the entire year of 2025, companies might allocate more funds towards substantial dividend hikes in the upcoming year. He further mentioned that February, traditionally the peak month for dividend increases, is expected to see even more significant growth as some firms may look to compensate for previous conservative strategies. In 2024, the large-cap companies in the broader market outperformed many others, achieving record levels in earnings, sales, and dividends. For 2025, a projected 8% rise in dividend payments is expected, up from a 6.4% increase in 2024.

Our Methodology

For this list, we scanned Insider Monkey’s database of 900 hedge funds as of the third quarter of 2024 and selected companies that are trading on the NASDAQ exchange and also pay dividends to shareholders. From that list, we picked 15 stocks with the highest number of hedge fund investors and ranked in ascending order of hedge funds’ sentiment toward them.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Automatic Data Processing, Inc. (NASDAQ:ADP)

Number of Hedge Fund Holders: 49

Automatic Data Processing, Inc. (NASDAQ:ADP) is a New Jersey-based management services company that offers payroll processing, tax administration, and human capital management services to its consumers. The company utilizes its cloud-based software and solutions to enable businesses to focus on growth while handling the complexities of workforce logistics.

With operations in 140 countries, Automatic Data Processing, Inc. (NASDAQ:ADP) processes payroll for one in six US workers and 16 million globally. This extensive client base has positioned the company as a leader in its industry, delivering operational efficiency and valuable economic insights from its aggregated workforce data. These insights, including wage benchmarks, offer businesses competitive intelligence, further enhancing the value of ADP’s services. The stock has surged by nearly 25% in the past 12 months.

In fiscal Q1 2025, Automatic Data Processing, Inc. (NASDAQ:ADP) reported strong earnings, with revenue totaling $4.8 billion, marking a 7% year-over-year increase. The company exceeded expectations in both revenue and margins, driven by robust growth in new business bookings, high client retention, and increased interest revenue from client funds.

In addition, ADP’s cash position also attracted investor attention, as the company ended the quarter with over $2.1 billion in cash and cash equivalents. Its total assets surpassed $49.5 billion. Operating cash flow rose significantly to $824.4 million, compared to $326.5 million in the same quarter of the previous year. Moreover, its trailing twelve-month levered free cash flow reached $2.6 billion.

Automatic Data Processing, Inc. (NASDAQ:ADP) recently achieved its Dividend King status, as the company has raised its payouts for 50 consecutive years. The company pays a quarterly dividend of $1.54 per share and has a dividend yield of 2.10%, as of January 15.

According to Insider Monkey’s database of Q3 2024, 49 hedge funds were bullish on Automatic Data Processing, Inc. (NASDAQ:ADP), compared with 52 in the previous quarter. The stakes held by these funds are worth over $3.5 billion in total.

Overall, ADP ranks 15th on our list of best NASDAQ dividend stocks to buy. While we acknowledge the potential for ADP to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ADP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock. 

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Disclosure: None. This article is originally published at Insider Monkey.