We recently published a list of the 10 Best S&P 500 Stocks to Buy for Dividend Growth. In this article, we are going to take a look at where Automatic Data Processing, Inc. (NASDAQ:ADP) stands against other best S&P 500 stocks for dividend growth.
Dividend stocks have been attracting increasing interest lately, particularly following the tech sector’s sharp decline in March. While technology companies have been gaining excessive popularity in recent years, the market correction served as a reminder that rapid gains can quickly be erased. In contrast, dividend-paying stocks embody the principle of steady, consistent growth. Although they may not generate the same level of excitement, they tend to offer long-term benefits, especially for investors seeking a reliable source of income.
Bryan Armour, Morningstar’s director of passive strategies, noted that the recent market volatility offers a chance to refocus on fundamental principles. Here are some comments from the analyst:
“With US stocks as a percentage of portfolios at one of the highest levels ever, this is an excellent time for a more diversified portfolio. That’s not to say to sell US stocks, but to diversify into bonds and international stock exposure. We don’t know what’s going to happen, so don’t try to guess. Just hold a diversified portfolio and live to fight another day. Be boring.”
Armour further suggested that investors looking for a safer option might consider exchange-traded funds that invest in companies with a track record of increasing their dividends.
A report by BNY Investments also suggested that with inflationary pressures and market volatility expected to persist into 2025, a dividend-focused strategy could be beneficial. Dividends were highlighted as a potential hedge against inflation while also providing a more stable income stream, making them a crucial element in navigating uncertain market conditions. The report further noted that the opportunity set within the broader market had expanded, as more high-growth sectors—particularly information technology, health care, and industrials—had increasingly embraced dividend payments. As of September 2024, approximately 80% of companies in the wider market were paying dividends, with the technology sector accounting for 24% of those, a notable rise from 13% a decade earlier. This trend underscored the idea that growth and income generation could coexist.
READ ALSO: 15 Dividend Zombies to Invest in
When it comes to dividend investing, stocks with consistent dividend growth are the top choice among investors. A Morningstar report indicates that over the past five years, these stocks have outperformed those offering higher yields in the equity market. The BNY Investments report highlighted that companies that pay and consistently increase dividends tend to demonstrate greater resilience during market downturns, as investors often turn to them for stability in uncertain conditions. These companies also have the capacity to raise dividend payouts in line with or even above inflation, making them particularly attractive to income-focused investors.
In an environment of low interest rates, where bond yields offer limited appeal, dividend-paying stocks have the potential to become even more compelling. With inflation remaining above pre-pandemic levels and possibly rising further, these stocks can serve as an effective hedge, adding to their attractiveness. The report further emphasized that dividends continue to play a crucial role in managing market volatility while providing a steady income stream and protection against inflation. Given this, we will take a look at some of the best dividend stocks with dividend growth.
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Our Methodology
For this article, we looked at dividend stocks in the broader market that have maintained consistent dividend payouts over time. From that list, we chose companies that have increased their dividends by an average of more than 10% annually over the last 5 years. The stocks are ranked in ascending order of their annual average dividend growth in the past five years.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Automatic Data Processing, Inc. (NASDAQ:ADP)
5-Year Average Dividend Growth Rate: 11.58%
Automatic Data Processing, Inc. (NASDAQ:ADP) is a New Jersey-based company that offers human resource management software and services. It focuses on technological innovation, global expansion, and outsourcing solutions. Recently, the company has prioritized AI-driven products and broadened its international presence. These initiatives are its key strategies, aimed at improving customer experience and operational efficiency.
In fiscal Q2 2025, Automatic Data Processing, Inc. (NASDAQ:ADP) reported an 8% year-over-year revenue increase, reaching $5.05 billion. Interest revenue from client funds also saw strong growth, rising 21% to $273 million, driven by higher balances and improved interest rates. These gains helped offset operational costs and reinforced the company’s financial stability.
Looking ahead, Automatic Data Processing, Inc. (NASDAQ:ADP) projects full-year revenue growth of 6% to 7% and expects to expand its adjusted EBIT margin by 30 to 50 basis points. The company maintains a solid financial position, ending the quarter with over $2.2 billion in cash and cash equivalents. During the first half of the fiscal year, operating cash flow rose to nearly $2 billion, up from $1.35 billion in the prior-year period.
Automatic Data Processing, Inc. (NASDAQ:ADP), one of the best dividend stocks, is a Dividend King, as the company maintains a 50-year streak of consistent dividend growth. In the past five years, the company has raised its payouts at an annual average rate of 11.58%. It offers a quarterly dividend of $1.54 per share for a dividend yield of 2.04%, as of March 26.
Overall, ADP ranks 8th on our list of the best dividend stocks for dividend growth. While we acknowledge the potential of ADP as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than ADP but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
