In part 17 of my 54 part Dividend Aristocrats In Focus series, I take a look into the operations of Automatic Data Processing (ADP). ADP provides businesses of all sizes with payroll, tax, and human resource services and software. The company was founded in 1949 in Patterson, New Jersey. Now ADP has 620,000 customers in 125 countries. The company has seen strong growth through its 65 year operating history and has now paid increasing dividends for 39 consecutive years.
Business Overview
ADP operates in two primary business units after the recent spinoff of its auto dealership focused Dealer Services divisions was completed in September of this year. The company’s two remaining divisions are employer services, and PEO services.
The employer services division accounted for 79% of revenues and 91% of operating profits for ADP in fiscal 2014, adjusting for the spinoff of the dealer services division. The PEO services division was responsible for 21% of revenues and 9% of operating profits for the company in fiscal 2014, adjusting for the spinoff of the dealer services division.
Competitive Advantage
When a business is selecting a company to handle its human resources, government compliance, and taxes it absolutely must find a company that will ‘get it right’. ADP operates in a field where being ‘cheap’ can cost companies significantly more in governmental penalties and fees. As a result, the bulk of the market goes to the largest most trusted company in the human resources field. ADP is that company.
ADP is the Human Resources provider for over 80% of Fortune 500 companies. Further, the company pays 1 in 6 workers in the U.S. through its payroll processing services. ADP’s market dominance is not confined to the U.S. The company is also the number one outsourced human resource provider in Europe.
Source:Â ADP NASDAQ OMX Conference Presentation
