Payments, Payroll, and Profits

03/19/2014 9:00 am EST

Focus: STOCKS

Charles Carlson

Editor, DRIP Investor

To the surprise of many, interest rates have backed off a bit so far this year. However, I think you will see some upward pressure on interest rates this year, especially in the second half of the year, suggests Chuck Carlson, editor of DRIP Investor.

That upward pressure could provide a nice bump for certain companies that benefit from higher rates.

Cass Information Systems (CASS) provides invoice management, audit, and payment services for companies in a variety of industries. The company disburses approximately $35 billion annually for its clients.

Part of Cass Information’s net income comes from interest on the balances generated during their clients’ payment-processing cycles. Thus, higher interest rates would generate greater interest income on clients’ funds that Cass holds.

The stock has dipped in recent trading, but the price decline is offering an attractive entry point in these shares. I own the stock and view it as a solid play among small-cap DRIPs. (The stock’s market capitalization is approximately $600 million.)

Cass has a direct-purchase plan in which any investor may buy the first share and every share of stock directly from the company. Minimum initial investment is $250.

Another stock I own that benefits from higher rates is Paychex (PAYX). The firm provides payroll processing and other human resources services primarily for small- and mid-sized companies. Paychex, too, holds clients’ funds, primarily for taxpaying.

Thus, it generates float off the client funds it holds for disbursement. The stock, yielding well over 3%, has pulled back in recent trading and is a buy at current prices.

Paychex offers a direct-purchase plan whereby investors may buy the first share and every share directly from the company. Minimum initial investment is $250. The plan is especially fee-friendly. There is no enrollment fee and no fee to buy shares in the plan.

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