Despite the bank failures, the Fed delivered a 25 basis point rate hike last month, its ninth since last year. The central bank has been able to bring inflation down considerably from its peak in June last year and is determined to achieve its long-term inflation target.
The likelihood of the Fed to keep raising interest rates this year is high. This could put the economy and the stock market under pressure. Amid the looming uncertainties, it could be wise for investors to buy Automatic Data Processing, Inc. (ADP) and ABB Ltd (ABB), given their solid dividend yield.
Dividend-paying stocks can provide a stable source of income and a haven against market turbulence. Such stocks not only provide regular income in the form of dividends but also have the potential to generate solid returns through capital appreciation in the long term.
Investors’ interest in dividend stocks is evident from the SPDR S&P Dividend ETF (SDY) 9% returns over the past six months.
Therefore, fundamentally strong stocks ADP and ABB, with solid dividend yields, could be strategic investments for investors trying to navigate an uncertain market.
Automatic Data Processing, Inc. (ADP)
ADP provides cloud-based human capital management solutions worldwide. It operates in two segments, Employer Services, and Professional Employer Organization.
Over the last three years, ADP’s dividend payouts have grown at a 10.4% CAGR. Its four-year average dividend yield is 1.98%, and its forward annual dividend of $5 per share translates to a 2.33% yield. It paid a quarterly dividend of $1.25 per share on April 1, 2023.
In terms of the trailing-12-month EBIT margin, ADP’s 24.12% is 148.3% higher than the 9.72% industry average. Its 78.30% trailing-12-month Return on Common Equity is 466.1% higher than the industry average of 13.83%. Likewise, its 18.24% trailing-12-month net income margin is 180.9% higher than the industry average of 6.50%.
ADP’s total revenues for the second quarter ended December 31, 2022, increased 9.1% year-over-year to $4.39 billion. Its adjusted net earnings increased 17% year-over-year to $814.90 million. In addition, its adjusted EBIT increased 15% year-over-year to $1.07 billion, while its adjusted EPS came in at $1.96, representing an 18.8% increase from the prior-year quarter.
ADP’s EPS and revenue for the quarter ended March 31, 2023, are expected to increase 10.4% and 8.3% year-over-year to $2.44 and $4.89 billion, respectively. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained marginally to close the last trading session at $214.22.
ADP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #16 out of 40 stocks in the B-rated Outsourcing - Business Services industry. Additionally, it has a B grade for Stability and Quality. We have also given ADP grades for Growth, Value, Momentum, and Sentiment. Get all the ADP ratings here.
ABB Ltd (ABB)
Headquartered in Zurich, Switzerland, ABB manufactures and sells electrification, automation, robotics, and motion products for customers in utilities, industry and transport, and infrastructure in Switzerland and internationally. The company operates through Electification; Robotics & Discrete Automation; Motion; and Process Automation segments.
On April 4, 2023, ABB announced that it was investing approximately $170 million in the United States to accelerate its growth strategy.
ABB’s CEO, Björn Rosengren, believes that the market in the United States will continue to grow and benefit from ABB’s product portfolio, enabling the transition to a more energy-efficient future. The company is expected to cash in on the increased customer demand for electrification and automation products.
Over the last three years, ABB’s dividend payouts have grown at a 5.4% CAGR. Its four-year average dividend yield is 3.21%, and its forward annual dividend of $0.92 per share translates to a 2.77% yield.
In terms of the trailing-12-month EBIT margin, ABB’s 12.62% is 29.9% higher than the 9.72% industry average. Its 10.38% trailing-12-month Return on Total Capital is 47.9% higher than the 7.02% industry average. Likewise, its 8.41% trailing-12-month net income margin is 29.4% higher than the industry average of 6.50%.
For the fiscal fourth quarter, ABB’s revenues increased 3.4% year-over-year to $7.82 billion. The company’s gross profit increased 10.9% year-over-year to $2.66 billion. Additionally, its EPS came in at $0.61.
ABB’s EPS for fiscal 2023 is expected to increase 25.6% year-over-year to $1.63. Its revenue for the quarter that ended March 31, 2023, is expected to increase 7.3% year-over-year to $7.47 billion. Over the past six months, the stock has gained 32.7% to close the last trading session at $33.54.
ABB’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It is ranked first out of 79 stocks in the A-rated Industrial - Machinery industry. The stock has an A grade for Sentiment and a B for Growth, Stability, and Quality. Click here to see the additional ratings of ABB for Value and Momentum.
Consider This Before Placing Your Next Trade…
We are still in the midst of a bear market.
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ADP shares were trading at $214.57 per share on Tuesday afternoon, up $0.35 (+0.16%). Year-to-date, ADP has declined -9.66%, versus a 7.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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