We recently compiled a list of the 14 Best Large Cap Dividend Growth Stocks To Buy Now. In this article, we are going to take a look at where Automatic Data Processing, Inc. (NASDAQ:ADP) stands against the other large cap dividend growth stocks.
Investors continue to favor large-cap stocks, as these companies often serve as the foundation of popular index funds and are well-known among both seasoned professionals and casual traders. Moreover, large-cap firms have demonstrated their ability to withstand economic uncertainty, thanks to their strong market presence and substantial cash reserves, which help them weather financial downturns with relative ease. For the second consecutive year in 2024, US large-cap stocks outpaced cash, bonds, and international equities, securing the top spot in market performance.
Also read: 12 Best International Dividend Stocks To Buy Now
A Morningstar report revealed that over the 10-year period ending June 30, 2024, large-cap stocks have outperformed small-cap stocks by an average of more than 6 percentage points annually. This disparity stems from differences in sector exposure—small-cap benchmarks have a lower concentration of technology stocks and a greater presence in traditional industries like consumer cyclicals, financials, real estate, and industrials. Although economic growth has been robust, these sectors have struggled to match the pace set by technology-related stocks.
In addition, according to JPMorgan Wealth Management, large-cap stocks play a key role in driving long-term capital appreciation for investors. Over the 10-year period from 2013 to March 2023, large-cap stocks delivered a total return of 162%, outperforming mid-cap and small-cap stocks, which posted returns of 139% and 108%, respectively.
Large-cap stocks demonstrate their resilience through their ability to increase dividends even in times of market distress. Several leading companies have maintained decades-long streaks of dividend growth, weathering major economic crises such as the 2008 recession and the 2020 pandemic. A report by T. Rowe Price highlighted that large-cap firms with a track record of consistent dividend increases have shown relative strength during downturns, suffering smaller losses than the broader market. In addition, these companies have often outperformed during periods of market stagnation and have participated in a substantial share of gains during bull markets.
Dividend growth is a key factor when evaluating dividend stocks, as companies that consistently raise their payouts have historically outperformed those that do not. A report by RMB Capital found that between 1972 and 2018, companies that initiated or grew their dividends achieved an average annual return of 9.62%, significantly surpassing the 2.40% return of non-dividend-paying firms. Even the broader market, with a 7.30% return, lagged behind dividend growers. The report also emphasized that companies with a strong history of dividend increases have not only sustained but expanded their payouts, even during economic downturns. From a portfolio perspective, dividend growth stocks provide solid diversification, as they are spread across multiple industries. This offers an advantage over high-yield portfolios, which tend to be concentrated in mature sectors like utilities and, prior to 2007, financials.
Analysts recommend incorporating dividend stocks into income portfolios, especially as several major tech companies have adopted dividend policies this year. With robust cash flows, these firms are well-positioned to maintain and expand their dividend payouts over time. Given this, we will take a look at some of the best large-cap dividend growth stocks.
Our Methodology
For this list, we first used a stock screener to identify large-cap dividend stocks with market capitalization above $10 billion. From that list, we shortlisted stocks that have 5-year average dividend growth rates of above 10%. The stocks are ranked in ascending order of their dividend growth rates.
At Insider Monkey, we are obsessed with hedge funds. 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).
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Automatic Data Processing, Inc. (NASDAQ:ADP)
5-Year Average Annual Dividend Growth Rate: 11.84%
An American management services company, Automatic Data Processing, Inc. (NASDAQ:ADP) ranks eleventh on our list of the best dividend stocks. The company offers payroll processing, tax administration, and human capital management services to its consumers. It leverages its cloud-based software and solutions to optimize workforce logistics, enabling businesses to concentrate on growth. In the second quarter of fiscal 2025, it saw an 8% year-over-year revenue increase, reaching $5.05 billion. Looking forward, the company projects revenue growth of 6% to 7% for the entire fiscal year, along with an expansion of its adjusted EBIT margin by 30 to 50 basis points. The stock has soared by about 23% in the past 12 months.
Operating in 140 countries, Automatic Data Processing, Inc. (NASDAQ:ADP) handles payroll for roughly one in six US workers, serving a global workforce of 16 million employees. Its broad client base has cemented ADP’s leadership in the industry, offering both operational efficiency and valuable economic insights drawn from its workforce data. These insights, such as wage benchmarks, give businesses a competitive edge, further enhancing the company’s service offerings.
Automatic Data Processing, Inc. (NASDAQ:ADP) currently pays a quarterly dividend of $1.54 per share and has a dividend yield of 2.01%, as of February 12. The company ended the quarter with a solid cash position, holding over $2.2 billion in cash and cash equivalents. In the first half of the fiscal year, the company generated nearly $2 billion in operating cash flow, up from $1.35 billion in the same period last year. With 50 consecutive years of dividend growth, ADP stands out as one of the top dividend stocks to invest in.
Overall ADP ranks 11th on our list of the best large cap dividend growth stocks to buy. While we acknowledge the potential for ADP as an investment, 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.
