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Paychex: Processing Profits

08/30/2018 5:00 am EST

Focus: TECHNOLOGY

Mike Larson

Editor, Weiss' Safe Money Report and Under-the-Radar Stocks

As you can probably deduce from its name, Paychex (PAYX) is a payroll processing, human resources, and employee benefit outsourcing and consulting firm, notes growth stock expert Mike Larson, editor of Safe Money Report.

It helps mostly small- and medium-sized businesses track hours, administer benefit plans, report employment data to regulatory agencies, and offer 401(k) plans to their workers, among other things. More than 650,000 clients were using its payroll offerings as of May 31.

In the fiscal fourth quarter which ended that day, adjusted profit rose 13% to $219.1 million, or 61 cents per share. That’s up from $194.3 million, or 54 cents per share, in the year-ago period. Revenue rose 9% to $871.1 million, led by a hefty 17% rise in HR services sales.

But what’s even more impressive is that Paychex has been delivering strong results quarter after quarter, year after year. Just look at this graphic, which shows that profit has grown at a compound annual growth rate (CAGR) of 10.4% over the last half-decade.

PAYX has also boosted its dividend at an annual rate of around 10% during that same time window. In fact, it just raised its quarterly payout again to 56 cents per share in April. That’s good enough for an indicated yield of around 3.2%.

Meanwhile, Paychex hasn’t earned anything less than a BUY grade (“B-” or higher) from our Weiss Ratings system since all the way back in January 2009. That’s a strong, consistent track record — exactly what you want to see in a Bedrock portfolio holding.

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