Payroll outsourcer Paychex (PAYX - Get Report) reported solid fiscal first-quarter results last month in spite of the continued weakness that's hampered the jobs market. Because this firm provides payroll processing and HR outsourcing services to small and medium-sized businesses, it follows that the firm would have outsized exposure to the staggering 9.1% unemployment rate. But Paychex has managed to trim its costs and widen its revenue net to counteract the earnings drag from jobs numbers.
As half of the U.S. payroll processing duopoly, Paychex helps businesses deal with the paperwork and logistics of paying their people. At present, the firm services more than 560,000 clients. Much of Paychex's more recent success has come from leveraging its current client base to sell other services that complement its core payroll processing business. Business lines like outsourced HR and 401(k) record management are examples of new ground for Paychex that's proved successful of late.Less successful is one of the most low-risk revenue streams for the firm: interest on the float that Paychex carries between getting cash from clients and the withdrawals from those clients' employees. Low rates have trimmed that float revenue considerably -- but ultimately that float income is a small enough portion of the firm's earnings power that it doesn't diminish the value in this name. This week, management announced a 3.23% increase in Paychex's dividend payout, bringing the company's total yield to 4.53%. Paychex is a holding in Generation Investment Management's portfolio.
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